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How To Invest in the Stock Market

Disclaimer: The following information is for investors who handle their own accounts and accept responsibility for their actions. If this description does not fit you, please leave.

We recommend using a three-pronged approach to investing in the stock market: technical analysis, fundamental analysis, and market timing.

Technical analysis (the study of stock charts)

Learn as much technical analysis as you possibly can. At a minimum, learn how to detect overbought/oversold conditions, and learn Elliott Wave patterns. In particular, learn how fibonacci levels work in Elliott Wave Theory. An excellent technical analysis educational site with many links is HardRightEdge (scroll to the bottom). Elliott Wave International offers a Basic Tutorial on Elliott Wave Theory for free. The Advanced Tutorial is by subscription. Probably the most valuable book on the study of technical analysis is The Psychology of Technical Analysis, by Tony Plummer. It will take about three reads to understand the book, but well worth the effort.

Fundamental analysis (or evaluating businesses)

The Motley Fool's Step 9: Evaluating Businesses should give you the basics on fundamental analysis. You should be aware that they only believe in the use of fundamental analysis, not technical analysis. We do not agree. Both have their place.

Market timing

The simplest and best market timing strategy is to: Buy in November and Sell in May. The Almanac looked at 50 years worth of market history on a month by month basis and showed that if an investor put $10,000 into the S&P during only the November-April period his compound investment would have grown to over $314,000. However, a similar investment over the May-October period would grow to only $11,500. The numbers for the Dow are $415,000 and $1,700, respectively.