Develop a method/system and trade to it
Now this point seems obvious but many people don‟t have a method. They trade randomly and are surprised they don’t get a result. Worse still they don’t even have consistent enough information to see where they are going wrong. Your method can be based on fundamental triggers, technical triggers, news or a combination but your aim is to develop a strategy that works more times than not.
Most people spend all their time on an entry method yet a 50:50 win/loss ratio is quite common for a trading method and this is as good as a random system.
Sure you want your entry to improve your results, but trading in line with trending markets, finding strong stocks in strong sectors, minimising slippage through trading higher turnover stocks etc all help and this is before the most important factor which is your exit and money management.
There are countless books, websites and trading systems out there so you will need to develop your own method to suit your needs or buy someone else‟s if you have to. You will need a method that you can test and refine over time. If it stops working, know you traded consistently and can redefine your method or create a new one. My experience to date has shown that mechanical traders using technical analysis seem to have done the best so far but it is a steep learning curve and relies on a lot of faith so it may not suit you. Either way you will need a documented system to trade with and improve over time.
Your end goal is developing multiple systems over multiple markets in multiple time frames so you maximise diversity, opportunities and reduce risk but this takes time and sufficient capital to trade with so start with one system and keep building.
Your system may only apply to say 5 stocks that you actively watch, know and trade. This speeds up your development time and some software vendors have back testing software that may even help in your analysis. You could focus on just the top 5 stocks in the top 3 sectors, remove the ones that are too gappy or dual listed etc and then develop a method to trade these as a way of getting started. Over time and with a system that makes profits overall, it‟s then just a case of placing more trades to make more money.
I am building a list of trading system resources, links and methods and will make this available. If you can recommend something then feel free to pass it on and I will disseminate it for everyone who reads this site.