How to Beat the Markets Like a Pro
Some of the most wealthy people in the world made their fortunes by trading various markets or making wise investments. Following a blueprint of these successful people can make you rich also. Read on to learn part of this blueprint.
Follow the Proper Rules
Everyone who trades is trying to beat the market. Some people, including many academics, believe it is impossible to do better than the market averages. They have this idea about the efficient market theory.
I am here to let you know it is possible to do better than the market averages and make a lot of money year after year. The keys are that you need the right rules and the proper trading mentality. Most of the winning rules and correct trading mentality go completely against typical human nature.
Most of the time, you can not follow the crowd because most traders and investors ultimately lose. To be a big winner, you will need to act and think differently than most others.
Give Yourself an Edge
You do not want to base trading decisions on emotions such as fear, greed, and hope. Implementing an objective approach will help eliminate this recipe for disaster.
A solid option would be a breakout strategy. For example, this could involve buying a stock or future when it reached a 25-day price high. Now you have the trend in your favor and are trading according to statistics instead of emotions.
All trading is based on probabilities. The key to success is to have an edge on every trade you make. If you trade with an edge and practice sound money management, you will be able to beat the market. It’s the same philosophy casinos use to achieve their great success.
The Charts Tell All
Many of the world’s best traders and investors use some form of technical analysis to base their trading decisions. Traders move prices, but more often than not, they don’t act in a rational matter.
Human nature causes people to develop specific behavior patterns. These patterns are observable on a chart, and they reliably repeat themselves. Specific chart patterns give us a greater probability of one thing happening over another.
Acting on successfully proven patterns will provide us with the edge I discussed earlier. Technical analysis is superior to a fundamental approach for projecting future price movement.
The best practice is to combine technical and fundamental analysis to make trading decisions. I will put much more weight on the technical side when making my trading decisions. That is the best way to beat the market consistently.
The Proper Psychological Makeup
Most people from a very young age are taught to look for bargains. The success of Walmart is a perfect example.
Our minds are wired to search for a good deal that appears inexpensive. This wiring works for most aspects of life but not so well in trading the various markets.
Stocks are a great example. Most stocks that reach new price highs tend to keep going higher. Most stocks that reach new lows tend to keep going down in price. Buying strength and selling weakness goes completely against typical human nature and normal intuition.
To become an elite trader, market-wise, you must have the proper psychological makeup. This mindset is how many of the world’s best traders and investors consistently beat the market.
Following the Trend Can Make You Wealthy
Some of the most successful traders in history implement the trend following strategy. This list includes Richard Dennis, who made hundreds of millions in the marketplace.
A trend trader will wait for a market to move and follow it. The goal is to capture most of the trend, which can mean a huge chunk of money.
It is all based on price and its movement. Of course, the best trend traders always practice solid money management.
It is prudent always to remember that anything can happen in the marketplace. All possibilities exist because there are quite a few unknown factors and forces occurring in the market. This reality is why you absolutely must implement sound money management.
Here is a real eye-opener for most people. You do not need to know what will happen next in the market to make money consistently. You will do very well if you have the odds in your favor on each trade you make and keep all losses small.
It is imperative to make sure you have an edge before taking a position. Armed with this knowledge, you are now ready to beat the market.