Five Step Trading

12/12/2011 1:00 am EST


Lex Van Dam

Founder, Lex Van Dam Trading Academy


For almost 20 years I have seen people trade, sometimes very successfully and sometimes with no success at all. I have seen their mistakes and learned from them. I have made many mistakes myself and hopefully learned from those as well. In no way am I done learning. It seems to be an ongoing process.

The five-step trading method is the culmination of my understanding of trading. It takes you through the different steps that you have to adhere to if you want to be a successful trader. That is a long-term successful trader. Anyone can be successful short-term, that is just a question of luck. Long-term success is skill and I can help you develop this skill relatively quickly and efficiently. So if you only follow two or three of the steps, you will for sure get hit one day and lose much more money than necessary.

The five steps are:
Step 1: Idea Generation
Step 2: Company Analysis
Step 3: Chart Analysis
Step 4: Self Check
Step 5: Risk Management

Step 1 Idea Generation

If you manage your own money you have to find your inspiration somewhere. You can't trade without ideas. I suggest you try to find ideas yourself as opposed to copying them from investor magazines, newspapers or tip-sheets. I also suggest you don't invest based on rumours as they are normally wrong. A good place to start is by thinking about what you are an expert in. Do you shop in Tesco, Sainsbury, or Morrison's and why or why not? You probably use a mobile phone, the Internet and put petrol in your car. Most of the products you use are made by companies that you can buy on the stock market. So if you see a product you like or dislike, maybe you should do some work to see if the company is going to grow or shrink and if you should buy or sell the stock of this company.

Another way of finding ideas is by reading the latest news about companies in the newspapers and may be trying to analyse their latest earnings results. And the impact this might have on other companies.

You can also take a different approach by looking at the economy or other local or global developments and then trying to find companies that might fit a certain theme. For example if the oil price keeps going up may be you should sell British Airways. Or if you feel that regulations might change regarding pension fund you might decide to buy or sell British Telecom.

When the credit crisis started it might have been a good idea to sell bank and buy defensive stocks such as food retailers while when it then turned out that the world did not finish you should buy some basic material stocks such as Rio Tinto.

Swimming against the tide is not easy. If the general market direction is down it is not easy making money by buying a portfolio of stocks. May be you should hedge yourself. I will give you insight into how to find the general direction of the market. It is not a science but you got to do as much as possible to get the odds on your side.

I will also talk about how and why history is very important and show you some stock market charts over long periods of time. They show that stocks have a life cycle and don't just go up over the long term and that you can't sit back without actively being involved in managing your portfolio.

Anyway, you might end up deciding that wind energy is the future and that you should find a stock in that sector. Unfortunately many of those stocks are just concept stocks and cost you a lot of money. Hopefully the next step will stop you from making a terrible mistake.

More information on of the other steps of 5-step-trading R.

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