Introduction

There are many challenges that we will face in our trading or investing journey. Here are ten of the most common challenges and opportunities in stock markets, each with a summary on the methods and opportunities to overcome them. For more detailed explanation, please refer to the previous articles with the URL links provided.

1.    Finding the Right Method or Strategy to Invest/Trade

There are numerous methods and strategies out there which are accessible through the internet or courses conducted by professionals, institutions or investment companies in educating people how to trade or invest. The challenge here is which strategy should you pick and adopt? The answer is always related to an individual’s risk tolerance and ability to identify the risk before taking any position.

The objective of trading or investing is to identify high reward-to-risk ratio trades instead of just focusing of finding trades that give exceptionally high returns but failed to recognise the corresponding risk. Hence, traders/investors should adopt methods or strategies which focuses on identifying and outline clearly the risk involved in each trades in relation to its potential reward (returns) rather than methods which only place high emphasis on good returns but disregard the potential risk involved. Failing to understand the importance of reward-to-risk ratio will not only put your capital at risk, it will jeopardise your overall investment or trade portfolio as these methods is similar to gambling.

2.    How to Determine Which Stocks to Trade or Invest?

Many traders or investors, especially beginners face similar challenge on how to select stocks to trade or invest. Stock selection requires two main processes to work hand in hand, which are:

1. Deciding on stock selection approach, e.g. Fundamental Analysis, Technical Analysis or combination of both

Traders or investors must first develop a basis on how to select which stocks to trade or invest based on the method that they adopt. These methods can be categorised into two different school of thought which are Fundamental Analysis, namely to select stocks to invest for long term, or Technical Analysis, namely to select stocks to trade for relatively shorter term.

It can be a hybrid of both methods whereby using Technical Analysis to determine the entry and exit points when investing in a longer term fundamental stocks, or using Fundamental Analysis to make sure that the company has sound fundamentals for a shorter term trade. Refer to previous article for more details.

Refer to Article 3 - What are the differences between Fundamental Analysis and Technical Analysis? http://klse.i3investor.com/blogs/ivsatradingtipsandplans/95311.jsp

Examples of some basis for Fundamental Analysis approach are such as avoid buying stocks of companies which are making losses consistently, invest in companies which have increasing revenue year to year and/or company which pays consistent dividends etc. Refer to previous article for more details.

Refer to Article 15 - Analysing Company Performance http://klse.i3investor.com/blogs/ivsatradingtipsandplans/100243.jsp

Example of some basis for Technical Analysis approach are such as avoid buying stocks that are being sell down heavily (avoid catching a falling knife), buying stocks that are close to their support level and/or buying stocks that are in the accumulation stages etc. Refer to previous article for more details.

Refer to Article 16 - Importance of Market Structure & How to Identify Them http://klse.i3investor.com/blogs/ivsatradingtipsandplans/100977.jsp

2. Identifying specific potential stocks in respective stock exchanges.

After the stock selection approach has been established, traders or investors will need to look for specific potential stocks that matches their basis from the stock market. As there are hundreds to thousands of stocks in each stock exchange, it is impossible to search and analyse them manually one-by-one from A to Z. Hence traders or investors have to rely on several methods below to identify potential stocks effectively and efficiently.

1. Keep your own watch lists of potential stocks that you like or familiar with and monitor these watch lists on a regular basis to determine the entry and exit conditions. Issue with this method is that there can only be a limited number of stocks that you can manually monitor in your watch lists
2. Subscribe to news letters from stock brokers, investment experts, reading news from main stream media and/or investment portal, etc. to keep yourself updated with development on the stock market, analyse stocks that are discussed to see if it meets your criteria and then add selected stocks to your watch lists. This method will expand your horizon of list of potential stocks in your watch lists but be mindful that many of the suggested stocks usually have rally up in price before it is announced to the public and hence the reward-to-risk ratio is not good
3. With todays’ technology, there are many trading software that include powerful screeners with charting analytics indicators that can automatically filter out stocks that provide high odds of profits daily. With this method, the software will perform all the “heavy lifting” of stock screening for you automatically everyday plus also expand your horizon to unlimited list of stocks for trading and investing e.g. you will find some small cap stocks with good fundamentals (that you are not aware of but are pick up by the software screener automatically and these stocks could be gems of the future) and you do not have to rely on and follow stock tips/rumors for your stock selection.

3.    Why We Must Learn Chart Reading?

Stock Charts not only show us its historical price and its movement over time, it illustrates current market conditions, and serve as a roadmap to show whether the stocks is trending up or down. If we are taking a long position (i.e. buying), we should identify signs of the stock is trending upwards before taking position and vice versa if we are taking a short position (i.e. selling). Therefore, without the skills of chart reading, it is very risky to trade or invest as it is similar to finding our way out while in total darkness. Refer to previous article for more details.

Refer to Article 14 - Importance of Chart Reading http://klse.i3investor.com/blogs/ivsatradingtipsandplans/99754.jsp

4.    What are the Signs of a Rising Stock?

When a trader or investor masters the skill in chart reading in identifying signs of a rising stock, this greatly reduces the risk in trading or investing as the odds are in your favor. Refer to previous article for more details.

Refer to Article 18 - Ten Signals of Rising Stock http://klse.i3investor.com/blogs/ivsatradingtipsandplans/102581.jsp

5.    What are the Signals of a Declining Stock?

Similar to the above, the skill in identifying signals of a stock that will trend down can highly increase the chances of the trade or investment being profitable by exiting at the right time. These signals can also be a position call for traders or investors when buying short. Refer to previous article for more details.

Refer to Article 17 - Ten Warning Signs of Declining Stock http://klse.i3investor.com/blogs/ivsatradingtipsandplans/101582.jsp

6.    What Preparations Are Required Before Placing a Trade?

Many traders or investors may feel not confident, without proper knowledge or unprepared in terms of risk exposure before placing a trade. To overcome this, one needs to develop a trading plan before taking position in any trade as this is the best practice used by professional worldwide. A trading plan shall consist of:

1. Exit strategy, which determines the maximum losses that you may incur/risk and target profit that you may earn
2. Entry strategy, which allows the entry point is made at a low risk & high return position
3. Position sizing, which sizes your position of number shares to buy according to the risk level that is acceptable to you.

With a trading plan, trader and investor can instill confidence before placing the trade as the risk and rewards are clearly defined in the trading plan and one will need have the discipline to follow the trading plan instead of being driven or affected by emotions caused by fluctuations in the stock markets. Refer to previous article for more details.

Refer to Article 8 - Develop a Trading Plan http://klse.i3investor.com/blogs/ivsatradingtipsandplans/97390.jsp

7.    How to Ensure My Method or Strategy Works for a Trade?

After you have identified your method or strategy in investing or trading, selected your stocks, and developed your trading plan, it is also important to back test your trading plan before placing your money into the market. Back testing can increase your success rate for a trade or investment on the basis that anything happened in the past is very likely to happen again in the future. Traders or investors should always remember to back test not only the strategy, but also the exit and entry rules from your trading plan. Refer to previous article for more details.

Refer to Article 9 - Back Testing your Trading Plan http://klse.i3investor.com/blogs/ivsatradingtipsandplans/97840.jsp

8.    How to Protect My Capital in Trading or Investing?

The key to successful trading or investing lies in protecting your capital as capital is the main ingredient needed in building your trading or investing portfolio. There are many methods of protecting your capital such as diversification, buying low risk financial instruments such as bonds etc. However, the most effective but is difficult to practice method of protecting ones’ capital is by enforcing stop losses in every trade. Stop losses not only protect against falling stock price due to unforeseen economic situations, it also helps trader to get out of wrong trades early. Refer to previous article for more details.

Refer to Article 10 - Recognise your Risk http://klse.i3investor.com/blogs/ivsatradingtipsandplans/98184.jsp

9.    How to Avoid Our Human Emotions Ruling the Trade?

Emotions can be seen as a trader or investor’s worst enemies. Not only they often lead to mis-judgement and losses, they also hinder our mind to act objectively especially in making crucial decisions. The biggest emotion enemies that we need to overcome are our own ego, fear and greed. To avoid emotion ruling the trade, successful trader and investor worldwide simply defining a trading plan upfront and follow them objectively and with discipline after a trade has been placed. This is because when the trading plan is determined upfront (usually when market is closed), emotions are not in play as the trade has not been entered yet. With the trading plan documented, traders or investors will just have to follow them diligently after placing the trade to manage their own emotions better. Refer to previous article for more details.

Refer to Article 13 - Trading Psychology http://klse.i3investor.com/blogs/ivsatradingtipsandplans/99468.jsp

10.How to be Consistently Profitable in Stock Market?

To be consistently profitable in the stock market is a great challenge and it does not happen overnight. The key in achieving this goal is to develop a systematic trading or investing process along your trading journey with the aim of having successful trades being repeatable over time and are less dependent on luck, or just following free tips/rumors blindly or making your trade decision based on emotions/herd mentality. Having a systematic trading or investing process will not only make you act objectively and decisively, it also helps to reduce our own emotional distractions while executing your trade. Refer to previous article for more details.

Refer to Article 7 - Goal Setting http://klse.i3investor.com/blogs/ivsatradingtipsandplans/96930.jsp

Conclusion

Investment or trading your hard earned money should be treated like managing your own business. Similar to starting a business, it is always not easy at the beginning and this series of educational articles brought to you by iVSAChart aims to help you (especially newbies in trading/investing) to overcome the challenges that you might face along your trading or investment journey.

Just like running a business, trading or investing requires a systematic process to run its day by day operations, constantly doing your market research to expand your horizon and uncover more winning opportunities and daily portfolio monitoring to make sure that things are going well as you expected.

Whenever there is a short coming, take it as part of the overall learning process and overtime your skills in trading/investing will get sharpened and improved through these challenges. Investment or trading is a life long journey; we should always set the aim to reach our destination but at the same time do enjoy and appreciate the “scenery” along the way and sometimes it’s the journey that teaches you a lot about your destination.

Remember this:

·      “Trading/investing is a MARATHON, not a SPRINT” so do practice patience in building wealth for your financial freedom

·      Benjamin Franklin’s quote of wisdom – “An investment in knowledge pays the best interest” so do invest in education to learn lifetime skills in trading/investing to grow and manage your hard earned money. If you treat trading/investment seriously like running your own business, then learn from businessman who emphasise in acquiring proper knowledge before they start the business as you can imagine there is no successful businessman that can grow his/her business consistently without acquiring any sound knowledge of what he/she is trading or buying/selling!

This is the FINAL article in this series of educational articles brought to you by iVSAChart. We hope that you have enjoyed these articles (especially for the newbies) and thank you for your support in our articles.

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.