Which Stock Market Trading Systems Will Work For You?

Perhaps one of the best stock market trading systems ever devised – and the simplest – is said to be used sometimes by Warren Buffet. He buys a stock or commodity that is at or near a periodic low. If it moves up he makes a profit and if it moves further down he simply buys more of it, but twice as much. That way he’s into profit once it recovers just half of what it lost.

This is a low-risk strategy in that the stock can never go below zero, and if the trade is of an index or a commodity then the danger of insolvency is removed as well. So all in all this is an excellent trading system.

But what about those of us who don’t have WB’s billions to trade with? What stock market trading systems can we turn to in order to minimise risk and maximise profits?

Any such system has to incorporate the collection and display of sufficient information about the stock or other security that we’re trading. It has to take into account our own targets and limitations, the capital we have available and any handicaps, such as lack of time, that we have to deal with. It then has to produce rules that we can easily understand and obey.

The situation is confused by hundreds of systems of various kinds available for sale on the internet, all claiming to be capable of making you thousands a week in profits, and nearly all being sold by people who never actually trade on the stock market. They can therefore largely be ignored as being of no use in the real world.

The remaining systems nearly all incorporate one or both of the two main techniques that have been around for many years – fundamental analysis and technical analysis.

Many traders are proponents of just one or the other, but it seems that those who are most successful use both methods.

Let’s take equities as an example. It must make sense before making a trading decision to check one or two fundamental indicators that may affect the price direction of the stock. If the price has been rising steadily it may be that buyers have been active ahead of a profits announcement due in a couple of days. If the profits are high this might have already been discounted in the market, and if they are disappointing the share price will probably fall.

If you’re a committed technical analyst then you would probably not take any notice of such matters, relying solely on the chart of the price history, and some chart-based indicators. Certain indicators may show a danger signal that the stock is already at a high and has nowhere to go but down.

You’ll probably find that a combination of fundamentals and technical analysis, perhaps with the right stock trade software, gives you the best information. By regularly studying your charts you will be able to determine with sufficient accuracy if a market is nearing or has now reached a periodic high or low. Blending such observation with fundamental analysis, i.e. knowledge of market conditions, special factors that will probably impact on the price, and so on, is what successful traders do to make consistent profits.

The important thing is that you as a trader develop your own trading system that suits just you and your own unique style. And if you use trading software or a robot then you should study and use it until you are an expert.

Philip Gegan

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