In my view, it is almost impossible to predict the markets consistently. If someone WERE able to predict the markets, why would he or she even share it with you. She would be sitting on billions of dollars. A successful investor does not say "Come I will teach you how to make money like me".
In my view, to succeed for stock investing, we don't need to be predictors but observers. Stock investing is much like trying to swim. When the river is flowing down, it is necessary that one does not try to swim up, because if one does, one will face stiff resistance. Similarly, if the flow is up, one should be careful to try to swim upwards and not down.
Difference between predicting and observing:
a. When the market is rising, asking "Till what point will the markets rise"
b. When the market is falling, asking "At what point will the correction stop"
c. In a rising market, shorting the stocks/index at a point where you "think" there is resistance
d. In a falling market, buying stocks/index at a point where you "think" is the support
a. When a market is rising, asking: are there signs that the trend is changing. If yes, what will be my strategy. If no, I will hold to my longs.
b. When the market is falling, asking, are there signs that the trend is changing upwards. If yes, which stocks will I buy when the trend changes.
c. In a rising market, watching for resistance. This means that if at a level the market finds difficulty to breakout, then considering that point as resistance.
d. In a falling market, watching for support. This means that if you find a level at which the market has already found support, then considering that point as support.
Too simplistic? What is the difference between the two you ask. The difference can be explained with an example.
If the markets have corrected by 20%, predictors would start buying the stocks and start averaging at each fall. Observers however will not buy the stock till the market actually stops, shows signs of stability and then shows some upwards movement. On getting their cue, the observer will buy into his position and keep the support as a stop loss point. There is just a small difference between these 2 techniques, but one that could have enormous implications on how much money you can make by stock investing.
Stock investing is not a game. Consider it a business with a certain risk and reward characteristics. If one plays it like a game one needs to be lucky to make money. If one treats it like a business, one needs to be just smart (with some luck).
By Aditya K Agarwal
Article Source: http://EzineArticles.com/940150