Author: Dr Wealth

Support and Resistance

Most traders use support and resistance levels to determine buy and sell signals, but have traders question the significance of these levels? Technical analysts believe strongly that traders and investors have price memories affecting them when they make trades. For example, they will remember the highest price of the stock they traded have reached. The memory will be stronger if there are emotions attached to it. If the trader had not sold the stocks at its high, he will be disappointed and will want to get even with the market. He is then inclined to hold on and sell...

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Trading Profits in relations to Time and Accuracy

The size of profits of a trading system, is related to time and accuracy. They are inter-related and it is not possible to get the best out of all 3 factors in any trading system. Before I elaborate further, I shall define what these 3 factors mean. Size of profits – I am referring to the average amount of profits the system will earn per trade. Time – The average length of time you held on to a trade. Accuracy – The percentage that the system is correct and earns you a profit. Big Profits = Long Time =...

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Minimize loss = Position Sizing and Stop Loss Limit

William O’Neil said that, “The whole secret to winning the stock market is to lose the least amount possible when you’re not right.” A successful trading system hence must be able to reduce losses in order to preserve the capital as much as possible. Losing 10% of your capital will need 11.1% to bring you back to your original capital. The problem about trading is that you can never be 100% right, hence, it is very important to minimize the loss when you are wrong. There are 2 critical elements that must be present in every trading system in...

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Buy and hold is not as easy as you think

I am not against buy and hold strategy. Instead, I believe it can really bring you great wealth – note that the world’s richest investor is a buy and hold strategist. Many investors are familiar with this strategy and often practise it, but not many are successful. Here are some of the reasons that may have caused their failure: 1) Fail to plan for future money needs Many people are myopic such that they only see the near future of 3 to 5 years ahead, and some may even see shorter than that. When it comes to investing, they...

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