Stock Market | They Say - You Cannot Time The Stock Market - Part 1

After rejuvenation , we kick off again with our diminished account. This time, we are going to be more careful. We will hold-up until the market is really piping hot. We get in, regrettably, at the top of the trend, and we get handed our hat - again.

Investing is counter-intuitive. You cannot win at trading the stock market, based on your emotions. That is how most human beings trade. The competent traders know that you are trading emotionally, and they take advantage of that information. Believe me, they aren't trading emotionally.

So what is the average individual, with retirement not too many years away, supposed to do?

Principle #1: Safety & Diversity
Trading individual stock. can be risky. There are so many factors that can influence the performance of an individual stock. people shouldn't be trading them. Why shouldn't you?

Here are just a few of the factors that can provoke a stock to move like a shot:

* Earnings are announced below the expected number

* The president of your high-flying tech company is diagnosed with pancreatic cancer

* Your business announces that the financial statements are going to be not on time this quarter

* Another leading company in the same business, not your company, reports bad earnings

* The new drug isn't approved by the FDA

* There is a catastrophic accident such as what happened to BP

* The list is paralyzing

Therefore, you must to invest in broad-based indexes of stock. such as the Russell 2000, the S&P 500 or others of that character. That way, the individual stocks can "stub their toes", or do anything else. It won't affect the index much. The broad-based indexes are affected by broad-based factors such as the general economy, financial trends, the government, inflation, war, 911 and other such incidents. You must diversify your risk over a large number of stocks; diversification leads to security.

Principal #2: Ease of trading
Let's face it. Unless something is easy to do, you won't do it. You are busy trying to make a living. If you are retired, you have a number of things your spouse says are essential for you to do. You might have children and grand-children situated across the country, or around the world, that you like to visit.

If you think you have the time to analyze each company's balance sheet and income statements, look at the different pundit's ratings, listen to the company's reports when they announce earnings, analyze your chosen company's competition, and subscribe to a service that advertises a stock that they have already bought, then you need to get a better life.

On the other hand, if you buy an ETF (Exchange Traded Fund), such as SSO, that's easy. SSO is an ETF that represents the entire S&P 500. It trades like a stock. When you buy SSO, you have purchased a proxy for the S&P 500. Oh, did I forget to mention: an one-percent move in the S&P 500 is close to a two-percent move in SSO. That means if the S&P 500 goes up 1% your holdings in SSO go up 2%. SSO is a leveraged ETF. It is leveraged 2X or 2 times. In my opinion, you need leverage to make any money trading the broad-based indexes - otherwise, you will find that the broad-based indexes don't move fast enough to make any significant amount of money in a reasonable amount of time.

Does the market always go up? Hell no!
Wouldn't you prefer to make money when the market is tanking? By the way, when a market moves down, it does so very rapidly, usually. A market retracement can eliminate the gains that you have accumulated over a large period of time. If you want to make money, you can't do it by sitting on the sidelines in bad markets.

Soooo You buy SDS. As the market goes against you, your SDS's value goes up. It is an inverse-ETF. You have been notified that you should stand aside during times of declining markets. In fact, many years ago, I subscribed to a financial newspaper, with the initials IBD, that uncovered stocks that were showing a "cup with handle" formation. Cup with Handle worked! The problem was that IBD continued to point out "cup with handle" formations at the same time as the market crash of 2003. They never indicated that you should get out of the market or heaven forbid, go short the market. Now you have an answer to that pain. Simply buy SDS and gain as your friends are bellyaching about a crappy stock market.

To review: You need to gain security by diversification. You have to have an easy to follow stock market trading system that doesn't take much of your time. You have to have a way of discerning whether the market is bullish, bearish, or should you sell and be out of the market for a while. You need to be familiar with when and how to take profits as they show themselves. And, finally, you have to know doesn't work.