Stock market always being at the bottom of a panic or depression where prices are cheap and no one is interested or even talk about investing in stocks.
Recognize an uptrend and hold it for the long-term as your profits will keep increasing. Watch closely for any trend changes. During an uptrend, the chart will shows higher low and higher high.
Whether you are a newbies or a season investors, Mr. Market will make you feel powerful as your buying decision always seem right and accurate. You became a very confident investor.
Bear Market
Down trend always start when the majorities of the stock analyst or news are positive and stock target price kept rising. At this stage, prices overrun the fundamental of the companies and investors are getting used to the easy money due to the market bullishness.
If your hand are itchy and still wish to trade in a down trending market, you must be ready to sell on strength and have the patience to wait for a lower low before buying again. When trade goes against you, cut losses as the market will continue to break lower low until the market is quiet again.
Trader who are failed to cut losses will find their losses keep increasing as the market continue on its downtrend.
Exceptions
When we say market trend, it means 80% of the stocks are moving together in an upward or downward trend. There are always some individuals stocks which due to their good fundamental and still earning good profits that will defy the current market trend. There are no one size fit all theory which work 100%.
By tracking the STI or DJIA, traders can roughly estimate how the whole market will move.
Smart Money
Smart money or Big Boys depends on fluctuation to make money. They are fund manager from banks, insurance companies or investment institutions who control large amount of money from investors who purchase unit trust or mutual funds. Smart money have private information which retail investors does not have access to and they know what stock chartist are looking at. That is why they are able to create fake volume and shake out the weak investors who trade on borrowed fund.
Smart money are also the people who you depend on to make money from the rise in stock price and suffering the pain of losses when stock price start to drop. They are the bankers and you need to follow them closely. What this mean that you need to be a trend followers. To be successful in stock trading, you need to execute your buy and sell accordingly to what the chart says. It sound easy but we humans have emotions and often failed to act like a robot. When price descend, we sit and hope that it will rise again for us to sell but most of the time, it will keep going down.
Fundamental
Stock prices cannot trend up or down without any fundamental facts. You need a good or bad news to move the stock price. The news or story must sound convincing in order to create a panic buy or sell.
Smart monies have data in advance on which sector are likely to do well and which are the companies that are likely to have good earnings. Companies with good fundamentals are the ones that stock prices will rise first.
Greed
Without greed, smart monies will not be able to make large amount of money from small investors. Stock market will keep rising and then crash again. Many people invest in the market for short-term quick profits. There will be winners but the majority of the investors are likely to lose money as many are not willing to put in the time and effort to study the companies fundamental. People like Warren Buffett who stick to their area of competence are still a minorities and analyzing companies is not an easy task.
Trend
Despite all the disadvantage of being a small investor, we can still win in the investing game if we can un-emotionally trade according to the stock trend.
You will only win when you are able to buy during a bottom of a panic, depression or intermediate swing when stock price start to rise.
You will only win if you can sell at the top when everything looks bullish and stock analyst keep raising their target price. Keep a close watch to the trend change and be willing to sell without seconds thought.
In simple term, you aim to trade in harmony with general trend of the market (STI or DJIA).
