Can you trade the stock market without a trading system for the stock market? Many people expect they can, but I don’t think you can win consistently unless you have a defined, tested, logical, unemotional, written out, trading system. Here is one that you can use that should make you much more successful in your trading endeavors.

Few people are naturals at making money at investing in the stock market. Some people have a stock market trading system built into their psyche, but they are extraordinary. However, most of us mortals, don’t have this talent. Most of us struggle and make some money here and there and then lose a hefty amount of money on one or two trades.

After licking our wounds , we begin again with our reduced account. This time, we are going to be more safe. We will delay until the market is really boiling. We get in, regrettably, at the top of the move, and we get handed our hat – again.

Investing is counter-intuitive. You cannot win at trading the stock market, based on your emotions. That is how most humans trade. The skilled traders know that you are trading emotionally, and they take advantage of that information. Believe me, they aren’t trading emotionally.

So what is the average man, with retirement staring him in the face, supposed to do?

Principle #1: Safety & Diversity
Trading individual stocks can be precarious. There are so many factors that can upset the performance of an individual stock, people shouldn’t be trading them. Why shouldn’t you?

Here are just some of the factors that can provoke a stock to move like a shot:

• Earnings come out just below expectations
• The boss of your high-flying tech business is diagnosed with a health problem
• Your company announces that the financial statements are going to be delayed this quarter
• Another famous company in the same industry, not your company, reports rotten earnings
• The government decides not to approve your company’s drug
• There is a calamitous chance event such as what happened to BP
• The list is mind-boggling

For this reason, you need to invest in broad-based indexes of stocks such as the Russell 2000, the S&P 500 or others of that type. That way, the individual stocks can “fall out of bed”, or do whatever else. It won’t disturb the index much. The broad-based indexes are affected by broad-based factors such as the general consumer economy, financial trends, the government, inflation, hostilities, 911 and other such incidents. You must diversify your risk over a huge number of stocks; diversification leads to security.

Principal #2: Ease of trading
Let’s face it. Unless the trading is easy to do, you won’t do it. You are busy trying to make a living. If you are retired, you have a list as long as your arm of tasks your spouse says are essential for you to do. You might have children and grand-children located across the country, or around the world, that you like to haunt.

If you think you have the time to research each company’s balance sheet and income statements, look at the various pundit’s ratings, listen to the company’s statements when they announce earnings, analyze your chosen company’s competition, and subscribe to a service that promotes a stock that they have already acquired, then you need to get a better life.

On the other hand, if you buy an ETF (Exchange Traded Fund), such as SSO (SSO), that’s no sweat. SSO is the Exchange Traded Fund that acts as a leveraged proxy for the S&P 500. It trades like a stock. When you purchase SSO, you have purchased a proxy for the S&P 500. Oh, did I forget to mention: an one-percent move in the S&P 500 is approximately a two-percent move in SSO. That means if the S&P 500 goes up 1% your holdings in SSO go up 2%. SSO is a leveraged ETF. It is leveraged 2X or 2 times.

Does the market always go up? Certainly not!
Wouldn’t you prefer to make money when the market is tanking? By the way, when a market moves down, it does so very fast, usually. A market retracement can eliminate the gains that you have accumulated over a large period of time. If you want to make money, you can’t do it by sitting on the sidelines in dreadful markets.

Therefore, You buy SDS (SDS). As the market goes against you, your SDS’s value goes up. It is an inverse-ETF. You have been told that you should sell your holdings during times of declining markets. In fact, many years ago, I subscribed to a financial journal, with the initials IBD, that pointed out stocks that were showing a “cup with handle” formation. It worked! The trouble was that IBD continued to point out “cup with handle” formations throughout the market crash of 2003. They never suggested that you should stop investing in the bullish strategy or heaven forbid, go short the market. Now you have a resolution to that pain. Simply buy SDS and gain as your compatriots are whining about a poor stock market.

Principle #3: Time the market
I know. You have read many expert articles that say that you cannot time the stock market. If you follow a stock market trading and timing system, you can time your purchases to your advfantage.

You need something basic like: The market is bullish. Or, the market is likely to go down. Or, who knows? Sell your holdings and wait for a trend to develop.. . Never go short a rising market. Never go long a market that is falling. These principles appear to be so simple, who would ever violate these rules? Many people do. I know I have.

The technique is getting in on a trend. You don’t mind if the market is rising or falling. You have to go with the trend.

Will you get into the trend at the very onset of the trend? In all likelihood not. But you will get in early enough to get a good portion of it. Will you get out prior to the trend changing direction? Most likely not. But, you won’t be holding, and hoping, as most or all of your profits vanish into some professional trader’s pocket.

When the market is going sideways. Sell everything and pause – this is very wearisome for some investors, by the way. Many people are so eager to make money, that they think that they have to be in the market almost or all of the time. They over-trade, and get a little buzz cut here and a little buzz cut there, as the market moves back and forth. In a short time, if they do this long enough, they end up bald.

Does a good stock market timing system get it right all the time? I have never seen one. But there are a few competent stock market trading systems available that make more money than the average person can make.

If you are capable to get the timing services trade dates, you will examine at them and think, “Well, I could have done better than that.” Actually, you probably couldn’t – or you wouldn’t be reading this article. You might inspect the trades and think, why didn’t they get in there? The market was going up there. They could have made a lot more money if they had gotten in earlier. If you think like that, you are suffering from 20-20 disease. Or, perhaps, you should be renting out your time machine, or crystal ball instead of trading in the stock market.

Principle #4: Many strategies are worse than useless.
Timing services are not perfect. Let’s accept that fact. In fact, pundits have stipulated that “buy and hold” is the way to invest. Well, let’s look at the last 10-years. You would have lost about 27% if you bought and held. If you had purchased almost any mutual fund, you perhaps would have lost almost as much. Check out several of our other blog posts that examine these facts.

Perhaps you should merely “dollar-cost-average”. That means you buy a fixed dollar amount of stock every month, or every year whether the market is going up or down. That hasn’t worked in the last 10-years either.

How about one way or another finding a stock that is going up and keep buying more shares of it as it goes in your direction. Trust me, that doesn’t work either. Does General Motors bring memories back? Does Novell or Cisco do anything for you?

Ok then. What about following the maket gurus? They are TV all day long. There are countless financial blogs. There are services, I won’t mention any names, that disseminate crumby, thinkly traded, stocks to buy. If they have thousands of followers buying, the stock, that stock will go up. Then, of course, they sell before you do. You are left holding the bag.

Here it is!. Buy a stock that has taken a big fall and is at the bottom and buy it there. If you have been trading for a while, you will have learned this lesson, too The complication is this. Where’s the bottom. Stocks can and do go down lower than you could ever imagine. They can exceed support and go down in impressive, gut wrenching strides. If you buy at what you think is the bottom, you might find that you are now a “long-term investor”. You convince yourself that If you hold it long enough, the stock will have to come back up – but it doesn’t have to come back up.

Principle #5: Money Management
Isn’t that what the old Merrill Lynch, advertised as their accounts – money management accounts. I had one of those. That’s not what we’re talking about now. If we are going to have a stock market trading and timing system, we need to put on money management.

We have to in some way know when to “take the money and run”! We cannot go into all the specifics in this essay, but to give you the simple principle, you have to take profits as the stock, or broad-based index is going in your favor. When you have the precise amount of profits, which is defined by the money management system, then, you should reap them. Sell your holdings and put the money into your account, before the market reverses its direction and takes your profits away.

If you do follow a defined, tested, money management systematic process, you will find that you don’t have to be racked as much draw-down. Draw-down is defined as the dollar amount you are willing to lose from where you got in, before the market goes back into the positive direction – or, in many cases, you abandon the trade. However, if you take the profits when the trend is very likely to end, you will make your accounts fatter.

To review: You need to gain safety by diversification. You have to have an easy to follow stock market trading system that doesn’t take a great deal of your time. You have to have a way of discerning whether the market is bullish, bearish, or should you sell and be out of the market for a while. You need to be familiar with when and how to take profits as they present themselves. And, finally, you need to know doesn’t work.

It sounds too good and simple to be true, but it is true. You can make money in the stock market if you employ a stock market trading and timing system that follows the above mentioned rules. Take a look at our actual trading data using the SPXTimer with its designed-in money-management system. You can trade bullish and bearish markets – even in your IRA. You won’t have to study stocks. You don’t have to do a thing except follow notification emails, and have the intestinal fortitude to trade unemotionally.

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