Satisfactory trading mixes timing, cashflow control and emotional control. Another key element is employing a proved system to tell you precisely when to build a position in the market. Many decades back, Jesse Livermore, who is potentially the best stock exchange trader ever, developed a technique or system called “Top Down Trading”. The concept behind this strategy is to have as many main factors in your favour as practicable before taking a position in the exchange.

The 1st factor Livermore would create is the final current market direction. Is the general stock exchange in an uptrend or downtrend? A new position in the stock exchange would only be taken in an uptrend. Roughly 75 percent of all stocks follow the existing general market direction. This makes it extremely smart to only purchase a stock with the general market in an uptrend.

The second factor is to check the particular industry group of the stock you are considering. Let’s imagine your stock belongs in the “Mining-Gems” industry group. Because stocks have a tendency to move in groups, its crucial to know if this precise industry group has been getting stronger or weaker over the past few weeks and months. You would require the industry group of your stock to getting stronger. This industry group research can account for 30-40% of a stock’s final price movement.

The following factor to think about is whats called tandem trading. Compare your stock to a sister stock in the same industry group. If you’re considering stock in Wells Fargo, check out B.O. An also. Place the 2 stocks of the same group next to one another and check their charts. They should look fundamentally the same. This is a confirmation your stock is acting the way that it should be.

The final step is the check out all 4 factors at the exact same time. Glance at the general market direction, the industry group, the tandem comparison, and the stock you are considering. This is your last analysis to be sure the chances are strongly in your favour before you take a position in the exchange.

The “Top Down Trading” system is just as valid and successful today as it was many decades back.

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