The Ultimate Stock Market Strategy

There can sometimes be a huge amount of confusion in our minds when it comes to what we can define as a stock market strategy. Not only this but it can be hard to find information on what can actually make up a strong market strategy. It is for this reason that we decided to elaborate on the subject for you a little. This topic is so blurred that even the representatives of some brokerage firms may not even know, and if they do they are strategically silent about it.

So let’s get to the point of what we would be able to call a Stock Market Strategy:

In essence Stock Market Strategy is a written set of rules that, after being retroactively tested on a live account, results in verifiable regular monthly profits. Using the set of rules, anyone can learn and emulate the strategy and the results will be the same as previous sharp results. Stock market strategy should always be free from independent subjective decisions, as well as effectual intuitions and emotions. The stock market strategy regulates all events that may occur and must be followed as a rule.

The following technical elements, rules, procedures, and emotional decisions of stock exchange trading or investment are called a stock market strategy:

• Risk Minimisation Techniques are only Rule Elements:

These are just one part of a stock market strategy, meaning it would be fair to say that they are unjustified strategies in when used standalone by themselves

• Stop-loss:

This is an essential rule element. Once again though, alone and without a strategy, it will likely only cause regular loss

• Follow-up Stop:

This is only an optional rule element but needs to be precisely regulated and then tested live after the initial demo testing. This is because it modifies strategy and can even cause loss-making because and can reduce profits when not used correctly.

• Take profits:

Another essential rule element. But without an overarching stock market strategy, profits may be rarely met. Therefore frequently using more stop-losses instead of taking profits, when this does become possible, can cause more continuous losses.

• Complex Option Techniques (iron condor, vertical spread, short strangle, ratio & back spread, etc.):

Whichever of these techniques may be referred to by some instructors as strategies, they are technically not strategies after all. Calling complex option techniques strategy is a serious error, they are only techniques themselves, but stock trading strategies can be put together from the complex option technical elements to achieve a regular monthly income.

• Tips from brokerage firms or trading and investment advisers: 

Since the strategy by which these tips are given is unknown, this is essentially based on virtually unwarranted trust. Therefore this should be done with a little caution about it

• Waiting it out “Strategy”:

This is the worst attitude, it does not meet any of the requirements of the stock market strategy. Being unable to generate a regular monthly income and having no loss minimization, can cause an indefinite loss or even a total loss of capital.

• Technical Analysis, i.e. exchange rate graph (chart) shape trading:

Opening a position at a breakout, at a teacup, or even at the bottom of an upward/top of a downward trend; Surprisingly, none of these actually are stock market strategies.

Some think of a double or triple-top breakthrough as a breakout. Although to another group of people the same thing could appear to be a teacup, and it could further look like a UFO to someone else. Certain people already consider connecting two bottoms to be a trend, other people will only find a trend when connecting at least three points. Some people draw the neckline on the candlestick, some pull the neckline to the end of the candle.

What we are trying to say is that within all of these different forms of analysis there is a strong presence of subjective elements, to the point where it is no longer possible to apply the same set of rules to each one respectively.

Do you know of a precise set of rules that can be applied to this type of analysis, that would then create a sound stock market strategy, providing the user with a regular monthly income?

• Stock Trading Under Emotional Pressure:

This is known as defiance trading – overheated emotions cause the stock market trader to ignore the stock market strategy and, further to this, take undue risks. In other words, this is purely  a psychological factor and may include mentalities such as:

‘In my previous trading week, I took losses and so now I have to make more profit this week to make up for that. This will make it possible to reach my average monthly profit.

Hopefully, you have made it this far into the article with us!

If you have, we can confidently say that you are now more knowledgeable in the definition of what a market strategy is, what common mistakes and methodologies can negatively affect a market strategy. As well as the factors that can make a strong market strategy when they are put together effectively.

Learn more about Trading strategy on wikipedia