Using a stock trading system is the foundation to consistent profits. Without a system you are exposed to higher risks and trading becomes erratic.
A key tool in a stock trading system is charts. Charts monitor stock movement over time and the trading style will determine the timeframe of investigation. Day traders are interested in changing patterns over hourly increments whilst longer term investors monitor stock changes over weeks, months and even historically over years.
One thing to look for in a stock chart is whether or not the stock is exhibiting price variations within a trading range. In this case the highs and lows of the stock's price are bound by a consistent high and a consistent low price. Graphing the highs and lows will show a trading band which shows the sideways movement of stock price over time. The value of a stock exhibiting a trading range is is in making smaller profits based on the smaller variations in price whilst keeping an eye on the stock for potential break out behaviour where the stock my undergo either a steady price rise or decline. Some traders will monitor a stock within a trading range to be ready for a potential breakout.
Trend trading is buying and selling stocks based on the indicated upward or downward trend of the stock price. A trend is indicated when three peaks or troughs can be joined by a straight line. Both upward and downward trends can be advantagous depending on the predicted movement in price and whether you are shorting stocks on a downward trend or buying low and selling high.
Proprietory or custom software can provide many tools for charting analysis to assist in formulating and sticking to a trading system. Used wisely, charting software can save time in integrating information to assist in decision making. Charting software can also be used for archiving your data analysis for future reference.
Being consistent with a trading system is important and it is equally important to be flexible enough to tweak the system where required> In so doing a trader will develop their own style. Weathering the inevitable loss is also important on the way to tweaking a trading system. Clearly not everything is predictable and it takes time to properly evaluate a system's effectiveness. Discarding a system without due consideration is a mistake.
Do be aware of advances in trading systems and continue to tweak your system based on both your results and in the light of new insights into trading systems. Don't be a slave to technical tools but rather develop your system as a blend of personal style and "mechanical" tools.
