Investing in Shares
Have you raised the relevant question?
When someone asks me “How do I invest in shares?”, a lot of ideas come to mind….and a lot of the information can bog a trader down and simply make trading overly complicated. Investing or trading for an income, is not easy as I believe that people by nature do not like to be wrong. We tend towards trying to find comfort in strategies and Indicators that we believe will make trading decisions more precise or accurate. We get caught up in complicated technical indicators and market commentaries that tell us when to ‘buy’ or ‘sell’, when in reality, nobody knows exactly what will happen in the market next. To me, trading is a game of probability and a numbers game as even the best traders will be wrong a good percentage of the time. I believe that focus should
Profits Vs Risks
To be put on the price structure of a share and understanding why a share price may move up or down and looking for areas where traders may get caught in a losing position. We aim to build a set of skills and implement them consistently with discipline. We have to also realise that our ‘perfect setup’ does not always ‘act perfectly’ so we have to accept it and move on to the next trade. When it does work and our share price goes up, we have to maximise our profits and reduce the risk.
Do your research!
When looking to invest into a share, we assess the market structure on a chart and how it reacts at different levels. We look for qualities in a chart that can consistently put the odds ( or have a higher probability ) of success in our favor. By looking at the technical price pattern on a chart, we can build a picture and look for an entry setup that meets our criteria and risk parameters. When we decide to buy a share, we want to see evidence of new buyers entering the market and accepting higher prices and therefore building our picture of ‘share price strength’. Also, buying in areas of uncertainty (ideally in contracting zones) before the ‘herd’ enters the stock, with setups of ‘high probability’, increases the odds of success. The example below plans out a trade setup and then the resultant outcome.
Planning is Essential
Every time we enter into a share, we should know what we expect to happen. Planning out a trade is a big part of investing. We should always know what we want to see in our price action picture and under what conditions we will enter a trade. We have to quantify our risk level so that if the level is hit the trade premise is void. Knowing what to expect with price action and anticipating price targets are important. If the trade does not play out as expected (maybe an unexpected event happens or it just is not moving with any conviction therefore more sellers entering), we have to be able to manage a trade effectively.