Successful trading mixes timing, cashflow management and emotional control. Another key part is employing a proved system to tell you precisely when to establish a position in the market. Many decades back, Jesse Livermore, who is possibly the best stock exchange trader ever, developed a strategy or system called “Top Down Trading”. The idea behind this technique is to have as many key factors in your favour as practical before taking a position in the stock market.
The 1st factor Livermore would create is the current market direction. Is the general market in an uptrend or downtrend? A new position in the stock market would only be taken in an uptrend. Roughly seventy five percent of all stocks follow the prevailing general market direction.This makes it terribly smart to only purchase a stock with the general market in an uptrend.
The second factor is to test the express industry group of the stock you are considering. Let’s assume your stock belongs in the “Mining-Gems” industry group. Because stocks have a tendency to move in groups, its crucial to know if this precise industry group has been getting stronger or weaker during the last few weeks and months. You would require the industry group of your stock to getting stronger. This industry group research can account for 30-40% of a stock’s final price movement.
The subsequent factor to think about is whats called tandem trading. Compare your stock to a sister stock in the same industry group. If you’re considering stock in Wells Fargo, check out B. O. An also. Place the 2 stocks of the same group next to each other and check their charts. They should look fundamentally the same. This is a confirmation your stock is acting the way that it should be.
The final step is the check out all 4 factors simultaneously. Glance at the general market direction, the industry group, the tandem comparison, and the particular stock you are considering. This is your last research to be certain the chances are strongly in your favor before you take a position in the market.
The “Top Down Trading” methodology is just as valid and successful today as it was many decades back.
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