Reducing risk and developing consistency are the benefits of using a good stock trading system. Without a system you are at the mercy of uncertainty and variable results.
A key component 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.
In the end, a trader will develop their own personal style irregardless of whether the latest technology for data analyis is used or the preference is for something simple like a spreadsheet. No system is 100% perfect and the aim is not to win all the time but for the wins to exceed the losses by a fair margin and in an acceptable timeframe.
Being a savvy trader means to be aware of changes in the landscape of trading systems. At the same time, have the flexibility to create and tweak your system as a blend of both personal insights and trading tools.
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