Welcome to part two of this three-part series.
In part one, we looked at the importance of timing and identifying high-probability assets across all markets.
In part two, we look at why being a good stock trader/investor gives you an edge that is often overlooked or underappreciated.
The stock market comprises thousands of companies offering opportunities almost every year. Through an analysis process, either using fundamentals, technicals or both, you want to narrow down to the handful of high-probability stocks that will trend over the next 12 to 24 months before you rebalance the portfolio.
If you are a regular reader of my articles, you will have gathered I am a big advocate of technical analysis and trend following for busy everyday people. It is simple to learn, less work day to day for far more profit and it is an approach that you can adapt around your busy lifestyle without compromising on time and profit.
A look at my portfolio.
I want to highlight some of the opportunities of the last few years that I have taken advantage of, first using technical analysis to identify, followed by a trend-following strategy to extract profit. I manage each asset's exit with a trailing-stoploss triggered when the bend at the end comes in.
From 2016 to 2018, Nvidia Corporation NVDA and Take-Two Interactive Software, Inc TTWO trended exceptionally well. NVDA moved 630% and TTWO 400% during these years. NVDA moved another 370% before the recent correction.
Below are the monthly time frames.
In 2019, Brown & Brown, Inc. BRO and Microsoft Corporation MSFT were examples of stocks performing very well before COVID hit in early 2020. BRO moved 180% from 2016 to 2019, with an 85% move in 2019 alone. MSFT moved 270% from 2016 to 2019, with a 95% move in 2019. Both have continued to perform since the recovery from COVID.
Below are the monthly time frames.
Following the recovery from COVID, CDNS and IDXX moved over 100% before this year's correction. I will leave you to look at the monthly time frames.
I can go back even further and list stocks that have been in my portfolio during periods of trend, as I have been doing this since 2007, but the above stocks are enough to illustrate my point. Take a moment to consider how well your portfolio would have performed over the last five to 10 years holding stocks for 12 months during periods of trend, taking profit when the bend at the end came in, rebalancing the portfolio with new emerging trends and repeating year in, year out.
And then imagine running a crypto portfolio in a similar fashion, but where the holding periods are much shorter due to the naturally shorter cycles of the crypto market. It is all straightforward once you get your head around it.
A robust routine
Managing a stocks portfolio well requires a proven process broken down into a daily and weekly routine. This involves:
- Scanning the stock market based on specific criteria.
- Analysing the results of the scan using technical analysis.
- Creating a shortlist of the very best opportunities.
- And then finally, executing a strategy that SAFELY extracts profit for the lifetime the asset is in trend, including entry points, stoplosses, risk management, exit management and the all-important compounding.
It may sound like a lot, but everything is difficult before it becomes easy. The best techniques are simple to learn. It is consistently applying the process over the long-term where people fall short as they lose sight of their long-term goals and fall prey to get-rich-quick schemes.
Nail this process for stocks, and you have sharpened a unique set of skills that you can then transfer to and adapt to the cryptocurrency market, an asset class we know that trends but is far more volatile than the stock market. A similar but different approach is needed.
In part three, we will look at how investing in stocks makes you better at banking profit, one of the main challenges budding investors face.
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