There are many stock trading strategies. Some traders trade using indicators, others using candlestick formations, some using Elliott waves. In this article we will talk about two main strategies that are based on price and price levels. This is a rebound from the level and a breakdown of the level. These are fundamental strategies to which volumes, tests of price levels, trading signals - false breakout and mirror level, indicators and Elliott waves can be attached as filters. Within the framework of fundamental strategies, two more strategies can also be distinguished: trend and countertrade trading strategies.

In my trading, I only use price, volumes, level tests, as well as horizontal and mirror levels, false breakouts. I also look at trend lines and open interest for additional information. In most cases, I trade a rebound from the level.

1. Rebound from the price level

2. Breakdown of the price level.

1. Rebound from the price level (support and resistance level)

Rebound from the price level- this is buying or selling near a support or resistance level, where it is possible to place a short stop.

Strategy: intraday trading (we close trades at the end of the trading session)

A more risky, counter-trend strategy, with a short stop of 300 points.

So, let's look at two options using examples release from level:

1. shorts (sales)
   
2. long (purchases)
   

The first option is short (selling)

Daily chart:

Using the example of futures on RTS index Let's consider a rebound from the resistance level of 89,500 points. On November 5, 2015, there were sales, a red daily bar formed, and there was a rebound from the resistance level of 89,500 points. A weak short signal was formed, since the daily bar did not close below 88,000 points.

Before this, on October 12 and 16, 2015, there were sales from the level of 89,500.

A strong short signal is a close below 88,000 points on a daily or hourly timeframe.

We are waiting for a short signal on the hourly timeframe.

Hourly chart:

On the hourly chart we see a closing below 88,000 points and consolidation at this level, consisting of several hourly bars.

Let's move on to the 5-minute chart and look for the short entry point from the level of 88,000 points.

Five minute chart:

On the 5-minute chart we see that several bars are being traded, all bars are closing below 88,000 points. We enter shorts with a stop of 150-300 points.

Second option —long (purchases).

Buy (long) using the example of futures on the RTS index from the resistance level of 81,500 points.

On November 13, 2015, we approached the support level of 81,500, where there was strong trading in August. The day was closed with a red bar, but if based on the candles, then a doji candle was formed - there is no certainty. There is no signal to go long on the daily bar, since they closed with a red bar, but the progress of sales on November 13, 2015 was not great, they did not go down much. Since we are at the support levels of 81,500, where there was strong trading earlier in August, we will wait for a signal to go long on the hourly timeframe. Closing above 82,500 points and consolidating above this level, consisting of two or more hourly bars, will be a signal to go long.

Daily chart 1:

Daily chart 2:

Hourly chart:

On the hourly chart we see that trading is underway and a few bars are closing above 82,500 points. We are looking for a long entry point on the five-minute chart.

Five minute chart:

On the five-minute chart we also see pro-trading and enter long from the level of 82,500 with a stop of 150-300 points.

2. Breakdown of the price level.

Let me say briefly, when a price level breaks through with the daily bar closing above or below the level, it is not recommended to buy and sell immediately; you need to wait for the price to return to the level, and then look for an entry point.

Daily chart:

Examples were given on the daily charts. But these strategies work on any time frame. Let it be an hourly, five-minute chart. All examples are shown in history and you can see how the situation developed further. But the purpose of this article is not entry points, like here I would enter, here I would exit. And what you should pay attention to when searching for and understanding the pattern of movement of a trading instrument (futures). Having understood which, you can calmly wait for your signal and open positions without emotions. More likely to make a profitable trade.

Happy bidding everyone.

When the average person hears that someone is trading on the stock exchange, something like this picture appears in his head: active trading at the terminal, price charts, minute-to-minute transactions, bought-sold, bought-sold, and so on. This is the classic image of the stock speculator, romanticized by books and movies full of exciting stories about quickly amassing untold wealth.

But there is another, less bright side of the coin - investment. Quiet, boring and at first glance completely unattractive as something unprofitable and long-term. You can’t make a million using them in a couple of months, but everyone wants to become millionaires quickly and immediately without registration and SMS.

When a beginner comes to the stock market, the broker will first of all tell him what Japanese candlesticks are, about patterns, support and resistance levels, margin trading and other indicators technical analysis. He will flood him with analytical reviews and forecasts: what to buy and what to sell today, where the market will go today, thus trying to guide the beginner on the path of speculation.

As a result, many people can’t even imagine other ways to make money other than just by fluctuating prices and trying to guess where the market will go. But should those who have just entered the market choose this path and what might it ultimately lead to? Who is better to become: an investor or a speculator? Let's try to figure it out in this article.

Investors and speculators

First you need to decide what the difference is between investors and speculators (traders). The basic difference lies in the way an investor and a speculator approach the markets, trades, and decisions. The most important feature of a speculator is his focus on making quick (short-term) profits: earn a few percent in a short period of time from a few minutes to a few days and exit the deal. The investor, on the contrary, is focused on receiving long term profit for a period of several years.

A speculator essentially doesn’t care what to trade, be it oil futures or cucumbers (if such were traded on the stock exchange). The main thing is that the instrument is sufficiently volatile, because speculator makes money on market price fluctuations. The trader tries to predict where the market will go, analyzes the price and trading volumes, the news background, looks for trends, and uses technical analysis indicators.

To increase his profit, a trader uses leverage ( borrowed funds). For example, he buys shares for 100,000 rubles, 50,000 of which are his, and the rest are borrowed shares provided by the broker. But this is a double-edged sword - leverage increases not only profits, but also losses. Speculators can also “short” the market - go short, that is, make money on its fall. In order not to go into a heavy loss, stops are used - automatic orders that close the transaction if the market goes in the wrong direction.

The approach of an investor is very different from a speculator: the essence of the instrument is much more important to him. He buys shares as a share in the business, rather than as something that is subject to market fluctuations. The investor makes money on the growth of business value and dividends. What matters to him is what is behind the shares, what kind of company it is, what its indicators are, profits, reporting and prospects. For an investor, there is a difference between the market price and the value of a stock.

Price is what you pay, value is what you get.

Warren Buffett

The main activity is analysis financial statements the issuer, its business and the search for promising or undervalued companies. To do this, he uses multipliers: price/earnings, price/book value, profitability and others. Investors do not use stops, leverage, or short the market, but use diversification to reduce risks.

Another category of investors is portfolio investors. They invest according to strategy and do not analyze companies, markets or securities. Their work comes down to broad portfolio diversification and the distribution of their funds into various asset classes (stocks, bonds, gold, real estate, etc.) using index funds that repeat the dynamics of market indices. This strategy allows you to practically not waste your time on investments, and brings a return at least not lower than the market one.

The stock market is like a casino

Some critics of speculation compare the stock market to a casino. This comparison is not very correct. The stock market was originally created to make it easier and more convenient to exchange shares in a business and to attract investors to the business. He has not lost this function even now. But some people come to the market exactly as if they were in a casino, making transactions as if they were making a bet at roulette. For such people, the market becomes a gambling house with all the ensuing sad consequences, because people lose money in casinos.

A person’s temperament and character play a big role. Not all traders are gambling addicts. Gambling is harmful to successful trading. There are people who successfully and consistently make money from speculation, but there are very few of them. A trader becomes a gambling addict due to his temperament and therefore is not able to consistently make money in the market; emotions and passion prevail over reason and lead to losses.

Just as a trader prone to excitement cannot make consistent money in the market, an impatient person cannot become a successful investor. In general, not every person is destined to become an investor by virtue of character, just as not everyone is destined to become an investor by virtue of personal characteristics destined to become a speculator.

The stock market is designed to redistribute money from the Active to the Patient.

Warren Buffett

How much do investors and speculators earn?

Let's try to compare what kind of profitability investors and speculators receive. In 2004, a study was published entitled “Do Individual Day Traders Make Money” (“Do Individual Day Traders Make Money”) day traders money?"), in which researchers took trading data from private traders on the Taiwan Futures Exchange from 1995 to 1999 and analyzed the results.

The study states that 97% of exchange accounts are owned by private traders. Day traders make about 20% of the daily trading turnover. The results of the study showed that over a period of 6 months, more than 80% of traders lose money, only a small part makes money consistently, taking into account trading costs.

In 2008, the Regulatory Commission banking China ( CBRC) ordered banks to suspend margin trading in the forex market for private clients, citing it as too risky for investors. The article provides statistics that from 80% to 90% of clients lost money on margin currency trading (link).

After the end of the LCI, the exchange organizes a magnificent ceremony to award the winners, but for some reason it modestly keeps silent about the fact that more than half of the participants lost money.

Almost any speculator can double his account in one month. But will it be possible to double it at this rate over the next few years? The question is rhetorical. The true goal of a person who comes to the stock exchange is to create capital, and not to compete with other speculators in profitability. Statistics say that anyone who comes to the stock exchange with the goal of earning hundreds per annum and participating in a virtual race is doomed to disappointment.

What does speculation lead to?

A few stories from life. In February 2016, the media told the story of a trader from Kazan, who, speculating on currency exchange in one day he was able to completely lose all his money and still owed the bank (No limit: how a private trader traded 42 billion rubles in foreign currency)

On the last trading day of 2015, December 30, foreign exchange market Russian stock exchange The dollar trading volume amounted to 296 billion rubles, its exchange rate increased by 1 ruble. - up to 73.6 rub. A significant share of this turnover was provided by a private trader - Denis Gromov, manager of a copy center from Kazan. Having started the day with 5.6 million rubles. on his trading account, he managed to carry out more than 5,000 transactions for the purchase and sale of currency worth 42 billion rubles in 4.5 hours.

True, the final result was disastrous. As a result of trading, Gromov lost 15.1 million rubles, while his account was reset to zero and he owed the bank 9.5 million rubles. Gromov still doesn’t really understand what happened, and is trying to write complaints to his broker - Alfa Bank, complaints to the Central Bank and seek advice on the Smart-Lab traders forum. His main question: how come the broker gave him the opportunity to open positions on the foreign exchange market with thousand-fold leverage?

Below are a few more stories from the traders' website smart-lab.ru, which show what speculation can lead to.

What kind of return should an investor expect?

There are no competitions for investors (this is understandable). For example, let's take the results of some famous investors. First of all, we cannot ignore the most famous investor in the world. From 1965 to 2014, his company, Berkshire Hathaway, grew in book value at a rate of 19.4% per year, while its stock market returned 21.6% over the same period. By comparison, the S&P 500 index's performance is only 9.9%.

Thomas Rowe Price - founder and owner of the American investment company, established in 1937 and headquartered in Baltimore, Maryland. The company managed a number of its own mutual funds and also engaged in asset management individuals, institutions, pension funds and financial advisors. Thomas Rowe Price is called the father of growth stock investing, and he sought to invest in stocks of well-managed companies in promising industries whose earnings and dividends could grow faster than inflation and the country's economy. The return on his portfolio from 1934 to 1972 was 15.4%.

Peter Lynch is known as a very successful manager of the Fidelity Magellan mutual fund. Peter Lynch is the author of two books " Beat Wall Street" And " Peter Lynch method. Strategy and tactics of the individual investor" in which he describes how simple private investor can outperform professional Wall Street managers. The return on the fund under his management from 1977 to 1990 was 29%, and the fund's assets grew from $22 million to $14 billion. In 1990, Peter Lynch left the foundation to devote more time to his family.

Benjamin Graham is Warren Buffett's father, teacher, and author of Security Analysis and Smart investor" The returns of his investment partnership with Jerome Newman Graham-Newman Corp. from its formation in 1926 until its closure in 1956 it amounted to 17% per annum.

Buffett isn't Graham's only student. In 1984, for the 50th anniversary of the book Security Analysis, Warren Buffett wrote an essay, “The Superinvestors from the Village of Graham and Dodd,” in which he questions the theory of efficient markets and reports the results of several investment funds, which were run by graduates of the business school where Graham taught his courses, as well as people who adhere to the value approach.

Four of the managers presented worked at Graham-Newman Corp: Walter Schloss, Tom Knapp, Warren Buffett, William Ryan. Three people are good friends of Buffett, including his Berkshire partner Charlie Munger. And two more pension funds, which Buffett has influenced.

As you can see, none of the most successful investors achieved triple-digit returns. But being ahead of the index by two times or more is already an outstanding result. Therefore, the return that an investor should count on is a few percent above the market index or inflation. But this is a profitability that is quite realistic to receive for many years.

Of course, it is quite presumptuous to hope to receive returns like professional superinvestors. In reality, most investors significantly underperform the index and even inflation.

According to a report from research firm Dalbar, the average mutual fund investor returned just 2.1% from 1992 to 2011, compared with the S&P 500's 7.8%. This is explained by the fact that the average investor holding period for the fund was only 3 years, since people are very susceptible to emotions, panic, and behave unreasonably, selling shares at the bottom and buying when everything has already risen.

Therefore, the most correct decision for a simple private investor would be to correctly form index funds based on them and under no circumstances deviate from the chosen investment strategy, but to follow the assigned course despite the storm.

How to make money on the cryptocurrency exchange? This question excited all social networks last year; every person has heard the word “bitcoin” at least once. But what is this sensational way of earning money? Is it possible to make big money on cryptocurrency? You will learn about this from our article.

Ways to make money on cryptocurrency

The most important thing in this type of earnings is to correctly determine the most suitable strategy for you. Today you can make money not only through investing and trading; there are many more diverse and interesting options that you can learn about in detail. But if you have chosen the most common options for how to make money on the cryptocurrency exchange, then you need to approach the process no less thoroughly.

Trading

The most important principle of how to make money on the cryptocurrency exchange through trading is speculation. That is, you must sell for more than you bought. But beginners often forget about this and in a hurry do the opposite.

Your actions if you choose trading:

Currency selection criteria

There are several criteria for successfully choosing pairs. There should be many offers for purchase and sale for your pair. This means that there is a demand for your currency, so you won’t have to sell it for a long time. If there is active trading, a trader with a lot of money is unlikely to significantly affect the rate. If the trading volume for a currency is small, then a large bet will reverse the course the way a large and experienced trader wants it.

Rate changes - pros and cons

You should also pay attention to changes in the cryptocurrency exchange rate. Strong fluctuations have two benefits: for experienced traders they can provide a good income, and for beginners - wasted nerves and losses, since it is quite difficult to guess them without sufficient experience. If you are a beginner and want to make money on large currency fluctuations, then it is better to invest a small amount to understand the further process. If you want to make money, it is better to choose more stable currencies.

What is investing in the cryptocurrency market?

Is it possible to make money on the cryptocurrency exchange by investing? Certainly. There are two types of investments in the foreign exchange market - long-term and short-term.

If you want to become a long-term investor, then you need to invest money for a period of a year or more. Supporters of long-term investments are people who are confident in the growth of a certain currency.

Short-term investments are made for a period from one week to several months.

A short-term investor does not know or assume what the future holds for the currency in which he has invested. He is betting on the currency's rapid and explosive growth in the near future, despite the possible belief that the currency is short-lived.

Algorithm of actions for a long-term investor

Is it possible to make money on the cryptocurrency exchange through long-term investing, and if so, what is the procedure for a long-term investor?

• First, you should study the forecasts for the future of the top currencies and choose the one that most appeals to you as a long-term investor.
• Wait for the maximum decline in the price of your chosen currency and buy it at the minimum price.
• Withdraw the earned money to the most secure wallet and forget about the investment for the required period.

The profitability of this enterprise directly depends on the growth of currencies. It starts from 100% and can go up to 1000%.

Reliability depends on the stability of the chosen currencies. Of course, the stability of fiat currencies is much higher than, for example, Bitcoin.

This is an ideal way to earn money for beginners. Long-term forecasts are the prerogative of experts with many years of experience. All you have to do is choose the most expert opinion for yourself, and then you will be able to earn as much as experienced traders earn on the cryptocurrency exchange.

Short-term investing

How much can a short-term investor earn on a cryptocurrency exchange? Everything depends on you.

1. Find currencies you are confident in. Long-term investments require a minimum of currencies, sometimes even one, while short-term ones involve several currencies that make up the portfolio. Study the overall picture of the foreign exchange market at this moment. Your goal is to find currencies that are growing steadily and have good prospects, or have not slowed down for a long time and have good reviews in the press. Short-term currency growth may be due to various positive events in the foreign exchange market. For example, before Bitcoin futures appeared, Bitcoin began to actively grow. For successful short-term investing minimum required- three currencies.
2. Distribute your portfolio share between currencies. Most of the portfolio should go to the currency that is most promising in the near future.
3. Buy currencies when their price approaches the decline level in the previous period.
4. Keep your finger on the pulse of foreign exchange market news and then choose a new investment portfolio. He may be the same.

The income from such investments is quite high: some investments pay off in a couple of months by 40 - 60%. But at one point the investor, often due to his mistakes, goes into the red. Most often this happens to beginners.

Reliability is quite high, since cryptocurrencies now, despite the big decline, have a fairly stable position in the stock markets.

The difficulty is quite high for beginners. You need to know all the exchange rate analysis tools, closely follow the news, know the technical side of cryptocurrencies and accurately determine their effectiveness.

Arbitration

This strategy of making money on the cryptocurrency exchange as arbitrage is not much different from trading. The only difference is that work is carried out on several exchanges at the same time. You can make good money by buying cryptocurrency on an exchange with high cost, and then selling it on the exchange where its value is higher.

How to make money on the difference between cryptocurrency exchanges? Follow the following algorithm:

1. Choose several exchanges that are optimal for you, where you can safely invest. The most important selection criterion will be their responsiveness to changes in course.
2. Opt for the most promising currencies. The greater the difference between decline and growth, the more promising the currency is.
3. At the first sign of a currency difference, you should simultaneously make an offer to buy the currency where the cost is lower, and sell where the cost is higher. Exchange rate changes are quite rapid, so there is no need to hesitate.

It would be much more prudent for a person involved in arbitrage in the currency market to use a cryptocurrency trading bot for this purpose, since the work is mostly mechanical.

The higher your speed on exchanges, the more you earn. Bots that work on several exchanges generate income of $200 - $400 per month. People can most often earn $50 - $150 per month.

Reliability directly depends on the stability of the exchanges you have chosen: if there are no problems in operation, and the withdrawal of money occurs quickly, then you should not have any problems. Unfortunately, rates vary greatly on small exchanges, where such problems are quite common.

This method of earning money does not require any complicated steps, so it is also suitable for beginners.

Margin trading

Is it possible to make money on the cryptocurrency exchange using margin trading? Naturally, because you can manage larger amounts than what you have. The trader uses not only his own funds, but also currency borrowed from another person.

1. Find large exchange with high turnover, for example, Bitfinex. It provides the opportunity for margin trading.
2. Enter your funds and take out a loan. Look at the difference in percentage, because there is a higher percentage and there is a lower percentage. High interest usually given for unpopular currencies, and low percentage lending is typical for popular currencies.

The actions of a margin trader on the foreign exchange exchange are similar to those of a trader. Once the loan period expires, the player can keep the proceeds for himself, and must return the loan with interest to the lender. If a series of trades turns out to be unsuccessful, you will be left with nothing.

Profitability can be very high for an experienced trader - 2 - 3 times higher than with regular trading (depending on the size of the loan). Beginners, on the contrary, risk much more than with regular trading.

Reliability depends on the chosen currencies, exchange and behavior.

For beginners, this process may seem complicated, because it requires certain behavior on the exchange, but the process of obtaining a loan itself is quite transparent and has no pitfalls.

Lending

How much can a lender earn on the cryptocurrency exchange? It all depends on the interest and the currency you choose. Let's take a closer look at reverse side margin trading.

Most often, loans are provided for 1 - 3 days, but there are periods such as a month or several months.

You can make good money by lending on an unpopular currency, but it will be more difficult to find a trader here.

The algorithm of actions for lending is as follows:

1. It is necessary to purchase funds for lending. You can combine it with long-term or short-term investments.
2. On exchanges where margin trading is possible, you need to set the interest for the loan and wait for a person who suits your conditions.
3. Once the term expires, you get your money back along with interest. You can receive interest daily, or you can receive it all at once upon maturity. The longer the loan term, the greater the reliability.

The yield can be up to 40% per annum, the average value is from 25% per annum.

Reliability depends on the size of the loan and the reliability of the exchange you choose. If the loan matches the amount in the trader’s account, and the exchange is trusted by traders, then the risk of your losses is reduced to zero.

Some exchanges make it possible to credit a much larger amount that the trader has in his account. When choosing a loan amount of 1:3 on a dubious exchange, there is a high probability of not receiving your funds and a low probability of influencing the trader or the exchange in this matter. But it is worth noting that such cases are rare: usually creditors are in no way tied to the trader’s failures and receive the invested funds back.

This method of earning money is suitable for both experienced traders and beginners, since the lending process is automated.

Results

This was a brief excursion into how and how much you can earn on the cryptocurrency exchange. Some conclusions can be drawn.

In order to have a good income on cryptocurrency exchanges, you need to study the theory well and regularly read many books on economics and finance. Without a theoretical basis, you significantly reduce your level of earnings on the crypto exchange.

You can make good money from long-term investing, but only as long as cryptocurrencies continue to grow. As practice shows, this trend will soon fade away, and sooner or later you will have to understand the intricacies of working on financial exchanges.

Successful operations require two conditions - price analysis and forecasting and the ability to effectively manage the capital allocated for the operation. For successful speculative trading, a trader must, firstly, specialize in any securities and, secondly, limit the number of operations it simultaneously performs. The number of simultaneously carried out transactions is set taking into account the time that a trader can devote to speculative activities. Thus, for non-professional speculators who do not have the opportunity to devote all their time to this activity, it is considered prudent to have no more than five operations at a time. For professional traders who have special equipment and staff at their disposal, this limit can be one hundred or more transactions. Experience plays a huge role in the success of stock speculation. Thanks to it, speculators can work based on a number of general market laws:

Comparing the prospects for trading various assets allows us to conclude that thanks to them you can optimally use cyclical price movements;

a rise in prices is followed by a period of stabilization or fall;

and this cyclicality, expressed stronger or weaker, always gives a chance to make a profit through countercyclical actions;

All types of investments that give high level return on invested capital experience periods of decline, which is associated with certain global economic phenomena or private reasons of a temporary nature.

The effect of a downturn can be smoothed out by spreading investments across markets that are not correlated with each other. Professional traders who take control of client money must strictly adhere to discipline, which is necessary to quickly liquidate losing positions. This ensures that losses possible on each individual position are more than offset by profits on other positions. However, like any other type of relatively aggressive investment, stock transactions do not provide uniform growth of capital over time, and periods of growth, even for a very good trader, can be punctuated by recessions. Such downturns do not matter much to long-term investors, since they care about the end result - an increase in capital over a year or several years. A very important role in successful stock trading tactics of stock market speculation and competent management of available financial resources play a role. Certainly, effective management capital will not be able to provide profit in case of wrong decisions, but will help mitigate the impact of unprofitable operations on the position of the speculator. Choosing the moment to enter into a transaction is one of the most important criteria, on which its success or failure depends. The condition for determining the optimal period for concluding a transaction is a correct assessment of the duration of the expected price development: a downward or upward trend, the interval of possible price changes. According to empirical estimates, in 70% of cases or even more, speculators made some mistakes when entering the market: often data on further price developments were either only partially taken into account or were interpreted incorrectly. At the time the transaction was concluded, the ratio of cash and futures rates was most often too unfavorable. Many speculators underestimated the likelihood of risk associated with a forward transaction. The practice of carrying out stock speculation has developed some mandatory conditions that can be formulated in the form of a set of rules for successful speculation.

Rule 1. Speculate only with funds that the player can afford to lose. First of all, the speculator must separate capital for speculative operations from other assets.

Rule 2. Before starting each operation, the levels of risk and desired profit should be established. Competent speculators immediately after opening a position issue a stop order limiting losses, which allows them to be confident that their positions will be automatically closed if the situation worsens to the designated level.

Once you have made such an order, it is important to resist the temptation to change the terms of the order, especially in relation to the level of damages. As a rule, the closer the market comes to the stop price indicated in the order to limit losses, the higher the likelihood that an error was made in assessing the market situation and its further development. Profit targets can be set more flexibly. However, it is important not to follow the general trend quick receipt small profit. In terms of profit, two different approaches can be taken. First, set a minimum profit level and close the position before it is reached only if some new trends change the market situation. Secondly, you can not set a profit limit, but gradually raise the stop price level following the market movement. Both approaches avoid small profits.

Rule 3. The goal of stock speculation should be to obtain large profits and small losses. As practice has shown, a good trader makes successful trades 10-15% more often than probability theory suggests.

Rule 4. For each transaction you can risk no more than 5% of speculative capital. This rule seems overly conservative. But if a speculator makes many transactions and violates it all the time, he is guaranteed to fail. Suppose a speculator has a certain amount of capital and risks part of it on each trade. Let's imagine that the capital is 10 thousand dollars and the risk is estimated at 1 thousand dollars on the transaction. Rule 5: You should make sure that the average profit is at least 10-15 times the transaction costs. The reason for failures in stock speculation may also be inattention to trading costs, which are constant costs of capital. The greater the percentage they make up in relation to speculative capital, the less chance of long-term success. Transaction costs include two components: the broker's commission and the bid/ask price spread. Each time a speculator makes a trade, he pays a direct commission to his brokerage firm (unless he is a trader) and an indirect price spread to the market as a whole. When analyzing the market and designing operations, it is necessary to consider the sum of these two costs on a simple break-even basis. Successful stock speculation depends largely on being able to minimize the impact of these fixed costs. There are two ways to do this. One of them is reducing costs themselves. Thus, a speculator can agree with his brokerage firm about minimum commission. However, price spread is one factor that cannot be avoided without being a professional trader. The second way to reduce the impact of costs is to speculate for large profits. This tactic can significantly reduce the impact of transaction costs and is also consistent with the rules discussed above. As experts note, the above management rules in cash speculator can help him conduct operations more efficiently. But of course, they will not replace the need for in-depth market analysis. It is the combination market analysis and skillful management of financial resources gives a good chance of success in trading.

Why can't a beginner win on the stock market?

For some time now I have realized that a person “from the outside” has no idea what a successful stock speculator or money manager actually does.

The profession is unique in this regard. We all imagine with fairly high certainty what a dentist or car mechanic does. The work of a plumber or a lawyer is also not very different from how an outside observer sees it.

However, with regard to stock speculation, everything is completely different. An amateur imagines the process of successful trading NOT AT ALL THE WAY IT ACTUALLY HAPPENS.

When a person who is far from trading first opens a brokerage account, he begins to make transactions in accordance with his amateurish ideas about the Market. Therefore, his chances of NOT losing his deposit are zero - after all, these very ideas CONTRADE to how one should trade in order to make money. A novice private investor has no chance to start his career on the stock exchange except by losing his first deposit.

The presence of various kinds of courses and literature about the market does not increase, but rather reduces the chances of most beginners.

No book on stock trading gives the answer to main question: HOW TO SPECULATE CORRECTLY? Books are written, firstly, in order to make money from them, and secondly, in order to increase their popularity. A successful speculator will not reveal his secrets general public, because his trading methods will stop working if too many people use them.

Courses offered by brokers, as a rule, provide deliberately false information: they are mainly devoted to classic technical analysis and encourage people to make transactions too often. The more commissions, the better for the broker. A person who completes such courses simply changes one misconception about the market to another, also incorrect. This curiosity looks like a good illustration:

This, of course, is an extreme case - but relying on Elliott waves and the magical power of Fibonacci series, upon closer examination, reflects reality no more objectively than the picture of the world in the head of the “novice trader” from the example.

I see five main development scenarios for 99% of beginners:

1. A person loses his first deposit, takes on faith the idea that “the stock market is a casino,” and stops his attempts in this area - nerves are more expensive.

2. A person loses his first deposit, but comes to the conclusion that he likes the game process itself, and actually begins to play on the stock exchange, like in a casino - not so much for the sake of money, but for the sake of pleasure and excitement. At the same time, he works somewhere else.

3. The person loses the first deposit and tries again. He doesn’t try to delve deeply into the essence of what is happening, because he thinks that he was simply unlucky this time. Perhaps he will read a couple of books, chat a little with other traders on forums, and master a few technical indicators. He does not strive for development, because he considers himself smarter than others, and attributes failure to bad luck. He also loses the second deposit, and the third, and so on.

4. A person loses his first deposit, but still decides to succeed. He devotes himself to reading specialized literature, attending courses, and delving into the intricacies of technical analysis. In the vast majority of cases, his understanding of the market changes from one misconception to another, just as wrong. Thus, a person can try to speculate for many years without achieving any results. An example of such a confused person, in my opinion, is Maitrade. Moreover, he was unlucky in the sense that at the very beginning he “fell into the flow”: his actions coincided with a phase of the market in which they were profitable. Then the market changed, but over all these years he was unable to find trading methods that corresponded to the new conditions.

5. A person loses his first deposit, embarks on a deep study of the market, comes to the right conclusions and formulates trading methods that can generate profit. However, he cannot adhere to these trading methods due to psychological reasons.

For example, my trend strategy assumes a reward/risk ratio of approximately 10:1. That is, at the moment of entering the market, I assume that it will move at least 10% from the entry point in the desired direction. I set the stop signal at 1% of the entry in the opposite direction. Practice has shown that before “catching” a movement, my system involves 3-4 entries, ending with the removal of “stops”. That is, winning occurs 1 time out of 4-5 visits.

How many people can withstand such psychological stress when their bet is taken by the market again and again?

When I'm in a trend strategy position, I assume that the nature of the market will change in some way after the move has petered out. And only at the moment when I see that the nature of the market has changed, do I close the position. In theory, everything is simple.

However, in practice, during a trend, the market makes many sudden movements up and down. And every such movement causes a great desire to take profits right now!

How many people are able to resist the temptation to take a small profit in the present, sacrificing the prospect of getting a lot more in the uncertain future?

And finally -

How many people actually trust their correct trading methods enough to stick with them after many times their earlier trading methods based on incorrect assumptions resulted in losses?

When I was already quite familiar with the market, despite the colossal losses, I still decided to continue this business, because I realized that I could achieve success thanks to the presence of a number of character qualities that are not characteristic of most people. I wrote about this in detail in the essay “My Path to stock market"(Part1 Part2). I was confident that, thanks to my personal qualities, my chances of understanding the situation and learning to trade profitably were significantly higher than others. Practice has shown that this is actually the case.

In the late 80s, two great traders bet $1 on whether anyone could be taught to trade. This dispute marked the beginning of the famous Turtle experiment. My position is clear: NO, ANY PERSON CANNOT LEARN TO TRADE ON THE EXCHANGE. Even if he is lucky and is taught by a trader who has already achieved success (which allows him to shorten the path from beginner to specialist by 95%), still no teacher is able to bypass the most important obstacle in the form of the student’s own psyche.

When I first saw how huge amounts of money in the stock market change hands in a matter of seconds, it seemed to me that making money through speculation was the simplest task that exists on Earth. I wondered why so few people had thought of this.

From the height of current experience, I will say that the profession of a speculator, if he is successful, is truly unique. Potential income is almost unlimited, but the barrier between billions of dollars and a specific person is so high that only a few out of millions can overcome it.