Ultimately, the best stock trading strategy is the one that provides the highest return in the shortest period of time with the least amount of risk. There are several profitable stock trading strategies that have withstood the test of time by working in a variety of markets, but a stock trading strategy is only as good as a trader's ability to implement it. As a result, two different traders may have markedly different results using the same stock trading strategy.
Role of the Trader
Some stock trading strategies are black boxes --- proprietary computer programs that generate buy and sell signals without explaining how --- but most widely used strategies have two critical components: the strategy itself and the trader. Successful implementation requires a deep understanding and strong grasp and commitment on the part of the trader, and puts a strain on his mental and emotional faculties. Stock trading is stressful and involves risk, and different people act differently under those conditions. Risk brings out human emotions such as fear, greed and hope, which can influence trader decisions. Those decisions have a strong influence on the outcome of any strategy implementation.
Matching Strategy with Circumstances and Personality
The best stock trading strategy is the one that best matches your situation, personality and resources. For example, some investors successfully day trade stocks. But if you have a day job and cannot watch the market throughout the day, day trading is not for you. If you attempt it in a haphazard way, you will lose money. What does it matter to you that somebody thinks day trading is the best strategy when it is causing you losses?
One element that all stock trading strategies have in common is risk management. Cash is the lifeblood of stock trading. If you lose your trading capital, any stock trading strategy is useless because you won't be able to implement it. Capital preservation through risk and portfolio management is therefore essential to all successful stock trading strategies.
After factoring in trader personalities and circumstances, CAN SLIM is the strategy that offers the best opportunity to the most traders. CAN SLIM was developed by owner and founder of Investor's Business Daily William O'Neil. It combines fundamental and technical analysis to select the best growth stocks. Every letter of the acronym stands for a particular component of the strategy. For example, "C" stands for "current earnings" and "M" stands for the "market," or more specifically current market conditions. Again, it's impossible to cite any "official" numbers or results because every trader's implementation is different, but the mounting evidence and testimony from successful CAN SLIM investors validates the strategy's concepts and longevity.
- "How to Make Money in Stocks: A Winning System in Good Times and Bad"; William O'Neil; 2009
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