How do you stay balanced? Well with the help of the chart, you can gain an understanding of how to do both.
Averages make you a great trader
In general, averages represent the amount of trades in an environment. So how do you determine averages and make your strategy a consistent winner?
One of the important ways to do this is to use a chart. What is an average, then? The term comes from what economists in the 18th century called “average value”. If I buy a stock at 10% above the average at the time, I expect it to finish a certain year at 10%.
If at the end of the year, you’d only bought 12%, what would you have had to gain? The same thing. If you traded 2-3 months at 30% above your average, you would have earned a great return. As another example, if you bought at 9% on your first trade, you were well short of your average. If you traded 2 months at 25% of what the average was at the time, you could very well have had more gains.
The more trades you have in your system, the more a chart will show you the strength of your position. Even a short range strategy will provide a good indication of what a position is at one stage of the trade, or what the trend is over a longer term.
For instance, the graph below illustrates the effect of 10% and 100% moves. 10% is the long term trend and 100% is the short-term trend. The trend is shown over a 10 day period from Oct 6th to Oct 20th.
Figure 2. The 10-day chart of the stock market with the 10–100% moves to illustrate the difference between the strength of one type of traders. Click for a larger copy.
There is a strong correlation between the size of a position and a trend. The bigger you are in the market, the larger a trend is likely to be. If you move up 1% in the market, that is 1% above your average over 10 days. For instance, if you have sold $100 stock during the 10-day period above, you would have earned about $1,000 in trades. But at the same time, you would have probably been a loser in the short run.
How do you become a consistent winner?
How do you know when to trade? Well you do not just have to keep making new trades at
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