Friday, March 20, 2009

Simple Stock Trading Rule

After reading, learning, trading and practicing stock trading, I learn a simple trading rule. It is not how to read a graph using technical analysis and not how to calculate fundamental. It is just a simple business technique that is "Buy Low, Sell High".

So, how to buy low and then sell high. It is quite simple because it is just like doing a business in stock market. When certain stock is priced at very low price, then it would be a good chance to buy in. This is because buying a stock at cheaper price enable you to sell it at higher price whether you are holding it for short period of time or long period of time.

The idea is quite simple but we still need to get back to "Why the Stock Market is called Stock Market?".

Basically, from what most books or definition, stock market is a place for businesses to sell their shares to the public in order to gain more capital to expand their businesses and public investors will get their benefit by receiving dividends from the businesses or by trading for capital gain.

For me, I like to think that stock market is a supermarket or mini market which is selling a lot of different products or goods. This might sound weird for you but if you read the simple story below, you might get what I wanted to share with you and you will be able to look at the stock market at another point of view.

Story Begins:

An owner of a supermarket ABC is selling a lot of products including can foods, carbonated drinks, facial products, shampoos, cooking oil, sugar and so on and so forth. So, those products are the stocks of the supermarket and those stocks are priced differently depending on brands, content, quantity and quality.

We as consumers will surely go to supermarket to buy the products. Normally, we will only go to buy our daily need during weekends that have sales which means cheaper price. This is a simple logic. We Buy the Stuff We Want at Lower Price and Correct Time.

So, this also applies to stock market trading. Imagine that stock market is a supermarket that sell a lot of different stocks at different prices. We only buy those great stocks during discount (Economy Crisis) and buy them at the correct time.

Make our stock trading techniques simple, follow the rule to buy cheap sell high and I am sure we can make our investment portfolio more profitable.

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