Tips for Trading Stocks - Using a System

Success is often elusive when it comes to trading or investing. For many, it is often easy to be profitable in the short-term. Most traders never enjoy longer-term success that comes with consistency. One reason for this occurrence is the failure to stick to a defined trading system. At the first sign of trouble, they will switch to another system or worse, add more indicators and oscillators to the system they are currently using.

Adding more bells and whistles only leads to confusion and conflict. The answer is to keep trading and investing a simple process; the simpler, the better. Trying to follow a complex system will lead to frustration. A few indicators might tell you to buy and some might be screaming sell. Waiting for numerous indicators to all line up will often keep you out of a good trade. Computer-run trading platforms have given us access to hundreds of technical indicators and oscillators, many of which are virtually useless.

How simple should your trading system be? You should be able to explain your system to a 10 year old. I recently ran across a particularly easy system that involved the toss of a coin to make trading decisions. Once the user identified a stock to buy and an entry price, he then flipped a coin to determine if he should take the trade. Heads would be a buy and tails resulted in skipping the trade. This person was always looking to be a buyer. The system could be expected to be workable since markets tend to move up about two-thirds of the time. The trader would then have to be able to cut losses and figure out a method to exit the trade. The point is that a simple system can work, if given the chance.

Another system might involve reading bars or candlesticks on a price chart. Certain price resistance and support points could be used to enter trades. Lines can easily be drawn on a chart to show these points over a few days or going back many months. Throw in some trend lines and it would be easy to define a workable trading system. It could be short-term covering a few days or longer-term for investors looking to buy and hold. All that would be required are a few rules defining when to enter and exit a trade.