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.
Notes
- The Best Chart Patterns To Trade (Reliability Study). Duration 10:51. Approximate success rates: bull/bear Pennant (55%); bull/bear Flag (67%); ascending/descending Triangle (73%); ascending/descending Channel (73%); Double Top/Bottom (75%/78%); Triple Top/Bottom (77%/79%); bull/bear Rectangle (78%/79%); H&S - Head and Shoulder (83%). To get the Breakout Screener software (subscription service) see: financialwisdomtv.com.
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