Before you launch your trading career or continue it, it is important to ensure that your trading method works. This is where the homework comes in. Chart studies, computer back testing, the study of the success and failure rate of chart patterns, how monster stocks performed historically, and eyeballing charts around specific price action back through many years are all ways to confirm your theories on what will make money. But you must know that your method will make money in the long term or you are just gambling.

I know for a fact that a few things do work and make traders money in the long term:

  1. Buying monster stocks in up trends make money. (William O’Neil has quantified much of this).

  2. Going primarily long in up trending markets. (Rising moving averages, up sloping. Indexes above the 50 day simple moving average).

  3. Staying flat or going short in bear markets keeps your bull market profits and may make you some more money. (Indexes below the 200 day simple moving average).

  4. Trading with a trend in progress using key moving averages as your signal. (The 10 day simple moving average is a great place to start to identify trends).

  5. Shorting a stock that has made a huge misstep with investors or customers, has accounting fraud, or imminent bankruptcy and just goes in a death spiral lower.

Here is a link to the performance histories of many popular trading and investing strategies that are currently in use. This link is to the site of the American Association of Individual Investors, they have performed computer generated back testing based on the associations interpretation of these strategies from studying the parameters of the system’s creators. You will also see the performance of the indexes along side the returns of the different strategies. >>> Performance History of Popular Strategies.