Intelligent Trading and Investing- First Post(simple)

There are thousands of stocks in the market, each with their own size, industry, business goal, and news. How can we make money from the stock market in an optimal way to gain the most, reduce losses, and reduce effort? This may seem an arduous task made for only the geniuses and mathematicians but with further analysis and research we can see this is not the case, not only that but the market is not random nor pure chaos, in fact the Medallion Fund which was the richest fund in history netting 60% APY, was run only by mathematicians which I hope would show to you that there is indeed a logic to the stock market. Now let me share some data with you. 90% of individual(not ETFs) stocks underperform the SP500 historically, moreover 85% of traders lose money their first year and of the original number only 5% remain profitable after two years but keep in mind profitable doesn't mean outperforming the market as even less of that statistic does and even less make it worthwhile(if you trade and get 11% vs doing nothing to get 10% you wasted your time). I would then give an estimate that roughly 2% of traders made enough money to outperform by an amount that is worthwhile. This should be a fair lesson in that investors who invest in the SP500 beat the vast majority of investing strategies in the market including that 4 out of 5 hedge funds underperform the SP500. Therefore, a precise strategy and not random nonsense is required to outperform the market(SP500). I will go over some logical, proven factors that will give you as much of an advantage as possible in succeeding as in investor or a trader to become the top 2%

1. Buy Quality Stocks( Watch List)

   You want to go through and find quality stocks that have strong fundamentals. It may take time and research to discover so but it will be worth it. Companies like NVDA led the AI revolution and their company is one of the best I've ever seen so i have it on my watchlist. Be careful not to be fooled like SMCI who have a history of illegal activity and should be avoided regardless of hype. Build a large list of only companies you believe in with good financials and future(like WMT).

   
   

2. Trade Stocks You Understand

   If you are not a medical professional you shouldn't touch biotech with a 75ft pole. If you understand cars however you should look into car stocks, if you understand tech, trade tech, if you understand energy companies, trade them. You don't have to be a professional per se but you should have a good understanding of the sector and industry as well as the companies to give yourself an advantage and know how to react to new information.

   
   

3. Pick Strong Markets

   If possible buying stocks that perform well in the leading sector of the year or period will give you liquidity and strong growth potential. Technology has been the strongest market for many years now all the way back to 2000 and has seen the best growth and returns, outperforming the market. You want to bet on the long term winners and not the losers, stick with strength until the strength goes away or until the market rotates to other sectors.

   
   

4. Buy Low, Sell High- Technical Analysis

   When buying a stock you don't want to trade a parabolic trend(exponential line curve) and lose money from hype. You want to analyze the stock with basic technical analysis of drawing a straight line across the tops, across the bottom and the current trend bottoms and tops. There are many trends historically so draw out ones from 5 years to 1 month for the best guidance. You want to use support and resistance of sideways lines where certain price levels were hit multiple times as a high or low regardless again on a 5 year to 1 month period. Setting up technical analysis too short term will make you misunderstand the actual direction of the stock and where it is heading. Buy close to bottom trends of mid to long term and wait for pullbacks in the stock and the market to buy at cheap levels. For example NVDA was 150 as a top. there was support at 130 and 115. It would be wiser to wait for it to hit the second, lower trend of 115 as to have higher gain with lower risk. Patience and control of your greed will lead to success then sell near the top of trends and resistances to prevent risk and take profits. If a long term trend is broken it may be that the stock is heading much lower and should be avoided until a new trend is formed, buying low is only good in an upward trend, don't catch a falling knife.

   
   

5. VIX and SPY Fear and Greed Gauge

   No the VIX(Volatility Index) and SPY(SP500) do not perfectly predict however they are accurate and do represent the general market very effectively. The general market directly follows the SPY in most cases so having a deep understanding of it and the history will aid you greatly. Not only that but if the TA(Technical Analysis) is supporting a drop in the SPY soon, it should be taken as caution to most stocks as well. Secondly, the VIV which is almost like the opposite of the SPY is relatively predictable and has a common rhythm of spiking to 20(ish) once a month, sometimes more, sometimes less. If it has been a few weeks since the last VIX spike it could imply that a dip or crash could be coming sooner than later. Then when the VIX does spike to the 20 range or higher, it usually cools down within a few days so its a good idea to buy stocks at the peak of a VIX spike. Putting both the SP500 and the VIX information into your trade decisions will give you a great edge and nuanced perception.

   
   

6. Research and Common Sense

   Researching historical trends, mathematics, technical analysis, fundamental analysis, understanding psychology, reading books from wise successful people, controlling your emotion and keeping updated on what's happening will always give you an edge and put you at an advantage in life and trading and is certainly not to be forgotten. Also keep in mind that you should always diversify and not put more than 33% of your money into one company or one niche area of the market at any given time as probability can be your friend but it can also be your enemy, therefore don't gamble.

   
   

   If you have a list of quality companies that you understand that are in a strong performing market that you buy on pullbacks and dips and sell when they run up in cooperation with the SPY and VIX movements while using common sense and having an educated and learning position, you should expect very well to outperform the market and earn 20% or more per year or more.