Dear Investors,
In this post, I wanted to talk about the "๐๐ฏ๐จ๐ฅ๐ฎ๐ญ๐ข๐จ๐ง" of my investing strategies.
๐๐๐ฒ ๐๐ซ๐๐๐ข๐ง๐
When I first started, like many beginners, I was tempted to seek quick profits, which naturally led to scalping. It was going well for some time, until the market found a way to humble you.
I quickly realized that this strategy doesn't work in the long run, as a single mistake can knock you out.
๐๐จ๐ง๐ -๐๐๐ซ๐ฆ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ
This approach is radically different. In the previous step, I realized that the market behaves like a casino in the short term.
However, over the long term, if we consider the $SPX500 , it appears to consistently trend upwards.
Why is this?
It's influenced by factors such as economic expansion, technological advancements, and inflation. Companies' revenues and profits tend to increase over time, and a 2% inflation rate stimulates spending and growth.
Ok, so it sounds like a way to go.
At the same time by "long-term," we're not just talking about 6 months or years; it could span decades.
One challenge with this strategy is that your portfolio could take a significant hit during bear markets and corrections. However if you just do โnothingโ in the longer run your portfolio will likely recover.
Another crucial aspect is understanding the financial fundamentals of any individual stocks you invest in.
Fundamental analysis deserves its own dedicated post.
In short, you need to grasp concepts like balance sheets (to check if the company's debt is well covered and assess its approximate book value), cash flow (to understand if they have enough operational cash). You should also be familiar with ratios such as P/E and EBITDA and etc. to gauge the company's profitability. Your research should extend beyond financials to include the company's business model, products, target audience, and even management team.
If you pick a trash company, over time it has a good chance of disappearing. Capitalism doesn't spares the weaks.
๐๐ฐ๐ข๐ง๐ ๐๐ซ๐๐๐ข๐ง๐
While holding long-term positions, you've probably noticed how the market can rise by 2% one day and drop by 2% the next.
This cycle of gaining and losing might feel like a spinning wheel, but these fluctuations could present opportunities.
While they may not matter much over years and decades, they do suggest potential short-term gains here and now (rather than some hypothetical future gains that might and might not happen)
Sometimes, the old saying "a bird in the hand is worth two in the bush"
In addition, swing trading is generally safer during bear markets because you often maintain a considerable amount of cash. You enter a position, gain for example 10%, and then exit. You're not chasing potentially crazy returns that may or may not materialize.
The challenge with this strategy is that no one can consistently time the market.
While reducing potential losses, you might also miss out on the best bull days. Additionally, unexpected macroeconomic conditions can trap you in positions. Imagine closing a position to re-enter at lower levels, only to see the market keep rising.
This leads us to the next strategy.
๐๐ฐ๐ข๐ง๐ ๐๐ซ๐๐๐ข๐ง๐ & ๐๐จ๐ง๐ -๐๐๐ซ๐ฆ ๐๐ง๐ฏ๐๐ฌ๐ญ๐ฆ๐๐ง๐ญ
No strategy is flawless, and different approaches may be more appropriate at different stages. At this point in my "evolution," I've developed a combination of Swing Trading and Long-Term Investment.
What does this mean?
I engage in swing trading with stocks that I'm content to hold for the long term. Market movements are often driven by sentiment, leading to overbought and oversold conditions.
When the market becomes oversold, I open positions in companies from my carefully selected list of stocks with "exceptional" fundamentals. My target gain per position is around 10%. If a position doesn't appreciate for any reason, I happily hold onto it for the long term. This underscores the importance of exclusively going long and investing in healthy companies.
I also diversify across various industries and markets to minimize correlation risks.
I avoid selling and exclusively engage in LONG trades WITHOUT leverage. I remain invested and rotate the portfolio like a grill when dish is ready.
I hope you found this discussion interesting.
If so, consider adding me to your watchlist or even trying to copy my strategy.
Happy investing!
Warm Regards,
Erbol.
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