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Basic Stock Trading Strategies

How To Trade Stocks Without Breaking A Sweat

When I was working in the markets full time, I found trading an enjoyable but immensely stressful experience. Back then, I was a day trader and invariably getting caught up in every market turn.

I felt a strange mixture of feelings back then. Some days there was so much going on I could barely sleep. Yet when the weekend came, all I wanted was for Monday to come around again so that the markets would re-open.

Fortunately for my health, as well as my stress levels, I don’t trade that way anymore. I’ve always had a laidback attitude to life in general, and I now take a much more relaxed approach to my trading too.

Why You Should Take Easy Street

The fact of the matter is that day trading is nowhere near what it was. Algorithms and machines dominate the markets, meaning it is very difficult to make short-term profits.

And then you have all the noise to deal with – the constant shouting from news outlets, TV stations, pundits, and brokers all telling you to buy this and sell that. And now we have smartphones, so it’s possible to trade on the go at almost any time of the day.

My own view is that traders need to step away from the news and the tips. They should develop their own unique strategies where they don’t need to spend every minute watching a quote screen.

Trading End-Of-Day Stocks

The type of trading I do revolves around the analysis and back-testing of end of day (EOD) stock data. You can get historical end of day data relatively cheaply, which makes it perfect for analyzing and developing strategies for the stock market. You can then make your trading plays before you’ve even opened up your trading screen. This is a vital advantage.

Typically, I will download my data and load it into a back-testing platform such as Amibroker. I’ll then spend a few minutes, perhaps longer, scanning the markets by eye, looking for interesting chart patterns and trading setups.

Or, I’ll spend some time reading up on new trading strategies or academic papers, anything to get the juices flowing and give me some new trading ideas.

Once I have an idea, I run it through the back-tester to see how it would have performed over the recent data, and that gives me some idea as to what to expect in the real world. Of course, developing a robust trading strategy entails a bit more work than this, but this is the basic process.

And once a strategy is in place, I can open up my trading screen, make my trades in the market and then go and do something else. You see, once I’ve calculated my risk/reward, put in my buy orders, and placed my stop levels there is nothing left to do. I place my trades on the market open, and then I only check up on them once the market’s closed. No watching the quote screen in agony, no scrambling to cover losses, no overtrading, nothing such as that.

Taking A Passive Approach

In fact, I not only take this approach to trading stocks short-term, I use it for my investing account too.

Passive investing is nothing new but it’s a strategy that works particularly well for picking longer term stock investments. And even Benjamin Graham would have enjoyed seeing all the tools that are available for passive investors today.

My approach is to use stock screeners to look for companies that fit all of the same criteria that Benjamin Graham would have looked for in his day. I scan for stocks that have reliable earnings, strong balance sheets, and are cheaply valued according to their key financial ratios.

I like to consider stocks with 5-year EPS growth over 10%, and with current ratios over one. As well, I look for net margins over 5% and PEG ratios under one. 

All of this can be done in a matter of seconds, revealing a watchlist of solid, financially stable companies with good track records.

You can then use your own unique approach to further filter these stocks based on your own fundamental view. You can ask questions such as:

  • Is the stock in a strong sector?
  • Does the trade conform to your overall macro world view?
  • Do management own shares in the company?
  • Does the company regularly increase dividends?

By taking this approach to investing, you can find quality companies that have been historically shown (in yours and others’ own back-tests) to beat the market. You can then buy these stocks once a week or once a month, depending on your preferences.

By following a system in this way, you can maintain discipline and invest in stocks without having to do any of the hard lifting, such as poring over financial statements or listening to conference calls.

Dollar Cost Averaging

If you want to be even lazier, you can forget about the whole timing aspect altogether and just buy a selection of companies each month, using the technique known as dollar-cost averaging (DCA).

I did some research into the DCA method and found that you can make ordinary enough returns by simply buying a selection of random stocks at the same time each month.

But the interesting stuff happens when you start thinking more carefully about which stocks pick using DCA. When you add a simple RSI technical indicator to the mix, you can start to see much better returns than many would believe. Simply by averaging into stocks with lower RSI readings, reasonable returns can be made.

And if you combine the stock screening approach used by passive investors with the averaging-in approach of DCA, you might have found a very relaxed way of increasing your wealth.

What Type Of Trader Are You?

In the end, if you want to trade stocks without breaking a sweat, there are many ways you can go about it. It all depends on what kind of trader you are, or want to be.

 You can look for trades when the markets are shut, place your orders and then forget about them. Or, you can take on the stock market every day, taking your clues from whatever mood the market is in at the time.

I know what I would rather do.

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For more trading tips and strategies, and to learn more about JB Marwood, please click here.