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Last Tips & Tricks

Are you using a stock investing system?

Stock investing tips by Mike Langevin

   

It is quite normal to think that every investor needs a good stock investing system. But do you know what that involves? Do you know how to go about creating one?

The fact is that all investors who are successful have a stock investing system. When they enter a transaction, they do so with a predefined set of rules and can accurately explain the reason for their actions. This set of rules enables them to approach the market with consistency, efficiency and above all, void of any market emotion. They face the market in a systematic way.

To choose the right system is not necessarily easy as there are dozens of profitable methods to approach the market. The tricky part is to choose a method that best suits your personality, to find the best fit in other words. Too often an investor tries to invest in a system that does not match their needs or vision. For example, an investor uses a system that would require 2 hours per day of his time when in reality he has no more than 2 hours to devote per week, or will use a system that will hold titles a few days when in fact his vision is contradictory as he would hold on to them for a longer term. Each investor has a different level of confidence, a different risk tolerance. Some prefer a system based on technical analysis as others prefer a system based on fundamental analysis, there are hundreds of possibilities. You must use a system that suits you, your needs, then when you have fully mastered the concept of that system, execute the rules that compose it.

 

The three pillars of your stock investing system

 

 

The right stock investing strategy.

First, the stock investing system that you use must have a set of criteria to help you choose the stock in which you are to invest. It should answer the basic question for you, from the thousands of available titles , which ones should you buy?

Obviously a hot stock tip from a taxi driver is usually very risky and not a very likely strategy you should follow. With any strategy, you will be facing a lot of information and techniques that could help you make investment decisions. Whatever your requirements may be, make sure that those who offer the strategy have a good track record. For example your selection criteria could be to follow the transactions of insider buying or simply a stock that rises above it’s 52 week high. Be sure that the strategy you choose has proven itself in the past. You should understand why you are choosing one stock over the other and be able to explain in detail the reasons for your selection.

Finally your strategy will need criteria to help you identify your point of sale. The selling point is often overlooked by investors. When a strategy is not precise and states comments like, we will see or has none at all, that is a big mistake! The exit point remains an essential element of any strategy. You must eliminate all possible emotion that would influence the sale. You’ve probably noticed that when one of your titles begins to slide you start having weird negative thoughts that cloud your judgment such as abandon ship! For these reasons the exit point remains as important as the entry point and should not be overlooked.

 

Assemble your strategies ” Build a system ”

Once you have a list of strategies that suit your needs, the right entry point , the right time frame, the right exit point … you put this list all together to create a system. Like any recipe, you add all the ingredients to create a final dish that suits your taste. The system should have the ability to respond to any situation and will probably involve the use of tools such as software, market indicators … this is what will allow each strategy to inter relate to one another

To become a winning investor you must master all the stages of your system so that your reactions become automatic for each signal you receive. Otherwise emotions could undermine your rules and be counter-productive to your system.

 

Discipline

Your system is now a set of rules and procedures that you will follow to execute your strategies. You’ve probably already heard” A system is as good as the person who executes it.” So if you do not comply with the rules established whether a transaction is on the rise or declining you cannot be successful. You must be confident and dedicated to your system. You have reached your goal? … You need to take your profit, even if you think that the title could go higher. When the market does not seem to be in your favor, it is in decline, fear takes hold of you and you need to take a stand, you have to trust your system and keep emotions at bay, follow your rules and buy. Otherwise, I guarantee you that the market will ruin your portfolio.

The market is a psychological rollercoaster that will send you up into euphoria then down into despair, don’t let your emotions whether positive or negative derail your system. A strong discipline is essential to ensure we apply our system and only then can we come out on top and be a successful investor.

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