Learn the right rules and the proper trading mentality
Everyone who trades is trying to beat the market. Some people, including many academics believe it is impossible to do better than the market averages. They have this idea about the efficient market theory. I am here to let you know it is very possible, not only to do better than the market averages, but to make a lot of money year after year. The keys are, you need the right rules and the proper trading mentality. Most of the winning rules and proper trading mentality go completely against normal human nature. Most of the time you can not follow the crowd, because a great majority of traders and investors ultimately lose. To be a big winner, you will need to act and think differently than most others.
A statistical and probability approach
You simply do not want to base trading decisions on emotions such as fear, greed, and hope. Implementing an objective, statistical approach will help eliminate this recipe for disaster. A solid option would be a breakout strategy. As an example, this could involve buying a stock or future when it reached a 25 day price high. Now you have the trend in your favor, and are trading according to statistics instead of emotions. All trading is based on probabilities. The key to success is to have an edge on each and every trade you make. If you trade with an edge, and practice sound money management, you will be able to beat the market. Its the same philosophy casinos use to achieve their great success.
Formulate your trading strategy with technical analysis
Many of the world's best traders and investors use some form of technical analysis to base their trading decisions on. Traders move prices, but more often than not, they don't act in a rational matter. Human nature causes people to develop certain behavior patterns. These patterns are observable on a chart, and they repeat themselves in a reliable fashion. Certain chart patterns give us a greater probability of one thing happening over another. Acting on successfully proven patterns will give us the edge I was talking about earlier. For projecting future price movement, technical analysis is far superior to a purely fundamental approach. The best approach is to combine technical and fundamental analysis to make trading decisions. I will put much more weight on the technical side when making my trading decisions. That is the best way to consistently beat the market.
Buying strength and selling weakness
Most people from a very young age are taught to look for bargains. The success of Wal-Mart is a perfect example. Our minds are wired to search for a good deal, something that appears to be inexpensive. This works for most aspects of life, but not so well trading the various markets. Stocks are a great example. Most stocks that reach new price highs, tend to keep going higher. Most stocks that reach new lows, tend to keep going down in price. Buying strength and selling weakness goes completely against normal human nature, and normal intuition. To become an elite trader, market-wise you must have the proper psychological makeup. This mindset is how many of the world's best traders and investors consistently beat the market.
Follow that trend to great riches
Some of the most successful traders in history implement the strategy of trend following. This includes Richard Dennis, who made hundreds of millions in the marketplace. Dennis knows exactly how to beat the market. Basically, a trend trader will wait for a market to move, and then follow it. The goal is to capture most of the trend, which can mean a really big chunk of money. It is all based on price, and it's movement. Of course, the best trend traders always practice solid money management.
Other important points to think about
It is prudent to always remember, anything can happen in the marketplace. This is because there are quite a few unknown factors, and forces happening in the market all the time. This is why you absolutely must implement sound money management.
Here is a real eye-opener for most people. You do not need to know what is going to happen next in the market to consistently make money. If you have the odds in your favor on each trade you make, and keep all losses small, you will do very well overall. Thats why it is imperative to make sure you have an edge before taking a position. Armed with this knowledge, you are now ready to beat the market.