Stock Trading for Dummies

First of all I am going to tell you that I am a stock"cue ball condition".  So let us say that in a
trading dummy and proud of it.  I have made millionshypothetical market the "cue ball condition" is met if
of dollars trading stocks and I am blessed with theprice moves higher by five dollars.  OK, now let us
inability to understand the technical analysis ofsay that a market closes at a certain price on
markets.Monday.  But on Tuesday the market meets the
You should be happy that you are a stock market"cue ball condition" by moving five dollars higher and
dummy because this fact may help you in makingso we decide to buy it at that price.  Now using the
real money in the stock market.previously mentioned market movement theory we
Some of the smartest people I know are in thedecide to always sell our positions acquired on
stock trading business and many are stock brokersTuesday on the open on Thursday.
and financial advisors.  I am going to let you in on aSo what will happen?  Well what will happen is that
dirty little secret.  Of all the forces in the economywe will make money over time and that about 55%
that have caused people to lose money in the stockof our trades will be profitable.  Why?
market, none have been greater than the advice ofBecause by first defining significant momentum we in
financial experts and brokers.  There does in facteffect turn stock market price movement into a cue
seem to exist an inverse relationship betweenball headed for the opposite side of the pool table. 
intelligence and effective stock trading.  It wouldThere is no guarantee that the ball will always end up
seem that the smarter a person is that the moreon the opposite side of the pool table but
effective they are in finding ways to cause you tomomentum theory says it's more likely it will end
lose your money in the stock market.there than bounce back.  Similarly the stock that
It has been scientifically proven that the performancemeets the "cue ball condition" on Tuesday is more
of stock brokers in picking profitable stocks could belikely than not to open higher on Thursday and if we
replicated by having monkeys throw darts at a pagesell it there we are more likely than not to make
of stock listings in the Wall Street Journal.  So themoney.
first lesson for the wannabe stock trader is to planHow do I know this?  Well first of all I have tested
to MAKE YOUR STOCK TRADING DECISIONSthis very basic idea extensively and have traded
YOURSELF and stay away from those stock brokerssimilar ideas thousands of times.  In fact in one two
in their pin stripe suits and shiny shoes.year period, while trading around two and a half
STAY AWAY FROM TECHNICAL ANALYSIS AKAmillion dollars, I took about 10,000 trades and pushed
WIGGLY LINE THEORYmillions and millions of dollars worth of trades through
You should also stay away from technical analysis. the marketplace while making about five million dollars
Technical analysis of market behavior is pseudoin profits.
science and frequently promoted by snake oilBut what was interesting is that I did NOT have a
salesmen disguised as brokers and other financialtrading system that was 95% accurate.  Instead I
advisors.  Other technical analysis proponents includeused a simple system based on market momentum
trading system vendors and trading system softwaretheory that won about 55% of the time and lost
companies.about 45% of the time.  Because of the random
For some brokers and financial wizards technicalnature of short term stock market price movement I
analysis is a kind of religion promoted to explain whatknew that 55% was about the best ANYBODY could
otherwise cannot be explained about markets.  It isdo and I settled for 55% accuracy.  And by settling
the opium of stock market losers everywhere.  I callfor 55% accuracy I made close to 100% annual
it WIGGLY LINE THEORY.returns on the money invested and I made nearly
(see Imperfect Market Theory )five million dollars in profits in two years.
For example, the proponents of technical analysisBE HAPPY WITH A 5% "HOUSE ADVANTAGE"
may tell you to buy XYZ stock when the 15 daySo 55% accuracy is not really so bad. If you can
moving average crosses the 45 day moving averagetrade consistently with 55% accuracy you have a
and then take profits on your positions next year"house advantage" of 5%.  That means that for
when the stock moves into "overbought" territoryevery $100 you push through the market you are
provided that the stochastic confirms the sell signal.going to make $5.  It's like owning your own casino
HOGWASHand YOU ARE THE HOUSE.
Hogwash and financial sophistry I say.   Again(see Stock Market Trading and Casino Gambling, You
technical analysis of market behavior is pseudocan be the House Investing in the Stock Market
science and if you are really fascinated by theGambling.htm )
technical analysis of markets you might also consider 
the study of cloud formations.   Both technicalSOME ADDITIONAL RULES AND STRATEGIES
analysis and cloud formations have a kind ofNow that I have given you a robust theory of
imaginative beauty to them and both can appear tomarket movement that can make a lot of money for
have shape and meaning.  But then as the marketus stock market dummies let me just add a few
moves and the winds blow those shapes andmore important rules and strategies.
meaning disappear and are soon forgotten.  It is not1)     MECHANICAL TRADING SYSTEM: Now that
a good idea to use technical analysis to determineyou have a theory, you should develop a mechanical
where to put your money.trading system, and resolve to follow it for at least
You may ask, "But all the financial experts useone year.
technical analysis and why can't I use this science to2)     GET YOUR SYSTEM PROGRAMMED:  Put
make financial decisions regarding stock marketyour system into a program that can be run on a
investment?"computer.  You are a stock market dummy so now
This is my answer: In the simplest terms technicallet your computer do the thinking for you.  You do
analysis is pretty useless, not because its math andnot have to understand technical analysis; you just
formulas are flawed, but because the data itneed to love and follow your computer.   You do
attempts to organize and make sense of isnot even have to think about markets; you just
predominantly random.  Short term stock marketneed to place the orders your computer tells you to
movement is predominantly random.  It is difficult toplace.
make sense of random data no matter how(see Intra-Day Stock Trader 2010 stock trading
sophisticated are your methods of analysis.  It issoftware.htm )
garbage in and garbage out.  The randomness of3)     DIVERSIFY: Spread your money out thin in
the markets defeats technical analysis along with themany markets.  We follow 96 markets and
bravest and brightest financial experts and traders.sometimes are in as many as 35 at a time.  Market
Be happy you are a stock market dummy.  If youdiversity can protect you from aberrant price
can't understand it you can easily shut out the noisemovement and aberrant price movement is an
and not become unnecessarily confused.occupational hazard of trading random markets.
MARKET MOMENTUM THEORY AND POOL HALLS4)   IN AND OUT IN TWO TO THREE DAYS: 
So what should we, the stock market dummies ofLimit your trades to two or three days.  The cue
the world, use to defeat and take money from theball is struck and it goes forward and then stops. 
bravest and the brightest financial experts andIt's a short term move and so is stock market price
traders?  What has worked for me, and in fact hasmovement based on momentum theory and
made millions of dollars for me, is not technicalprobability.  Momentum theory ends with day 3 and
analysis, but something I call market momentumoftentimes sooner.  But keep in mind that there is
theory.  Market momentum theory is based morealso great safety in limiting your trades to two or
on physics than math.  I did not learn marketthree days.  You have certainly heard stories of
momentum theory in an economics school; I learnedpeople who have lost everything in the stock
market momentum theory in a pool hall.market.  Let me assure you that the only people
Let me illustrate with a pool hall example.  In poolwho lose everything in the stock market are people
one player makes the opening break shot by strikingwho let brokers do their trading for them and who
the cue ball with the cue tip causing the ball to movemarry stocks and refuse to sell them.  By making it
towards the racked balls on the opposite side of thea rule that you will ALWAYS get out after two or
pool table.  The cue ball can end up anywhere onthree days you cannot lose all your money and
the table, in a pocket or even on the floor. become a stock market casualty.
However, because the original momentum pushedSTOCK MARKET DUMMIES UNITE
the ball from one side of the table to the other sideSo stock market dummies unite!  Ignore the
of the table, probability favors that the ball will stopexperts, trade simple ideas you can understand, and
rolling on the opposite side of the pool table fromlet your computer do the thinking for you.  By
where it was initially struck with the cue tip.following these rules for Stock Trading for Dummies
We can easily transfer this theory and apply it towe can easily take over Wall Street and put "the
stock market movement.   First we must definesuits" out of business.
"significant price movement" and we can call it theStock market dummies can be rich!