I have learnt two methods to trade and invest in the stock market. After using both methods for some time, I recognised the period each method would perform well.
Let’s begin with investing. I have learnt the method from Dennis, and he taught me how to buy good stocks cheap. I can buy something with potential at an undervalued price due to some pessimism and lack of interest for the stocks. It is very hard to lose money when you get in with a deep discount. Many investors understand the margin of safety as preached by Benjamin Graham but people fail to recognise the importance of this buffer. We all understand that the stock market gyrates up and down, and this buffer helps you retain some profits. Even when the market comes down significantly (-10% or -15%), you would only suffer a slight paper loss. This enables you to have the holding power, as you are not very much emotionally affected.
I have learnt the T3B method which I have used for the past 2 years. I would describe the method as short to medium term. It reaps profits about 3-4 times a year, each time lasting about one to two months. As long as the trend is intact, the market tends to move in one direction 3-4 times per year, and that is when the method is most effective. For me, I can see this method can complement to my investments. Investing allows me to get in early but it does not make sense to invest more when the market becomes overvalued, even though what I have additional funds to deploy. In this case, I can use the T3B method when the market is euphoric. Market euphoria creates very strong trend and that is where T3B method works the best. Investing would not be appropriate for this period as almost everything is overvalued. But I would still be able to trade safely as the downside is always protected by a stop loss order. If the market turns down, I would still be one of the earlier group to get out of the market, and at the same time, take profits as much as I can. And once the market reversal has been evident, I can switch to shorting using the T3B method again as the market trends down strongly.
After shorting, I can use the investing method to pick up discounted stocks and hold them for the next bull run.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
What do you think?