Well, first of all this is not Jesse Livermore´s famous book how to trade in stocks, which is, by the way, a very recommendable read for anyone interested in trading the stock market.
It is one question with infinite answers, as many as individuals.
There will never be two persons that trade the same way; even when they have a similar attitude or approach. A lot of people will do day trading, others swing trading, others will invest in a stock for a lifetime, other will trade with MACD, or RSI, or Bollinger, others do not even use charts, and so on.
How to trade stocks online?
I am going to talk about a simple method of trading, which has nothing to do with day trading.
And, what is that method of trading that supposedly works for every instrument?
Well, that little method is to buy securities (or sell) when they are making new highs (or lows). They could be historic highs or 10 years ones.
It seems so easy and obvious that not many will pay attention to that sort of trading since we it does not promise 100% returns per month. But, the truth is that if traders kept themselves to trade in those instances, they would probably have a nice return. And the best thing is that you do not need cumbersome systems or hundreds of indicators to rely on.
How trade stocks work
The only thing we need is to look for stocks that are trading at their historic maximum prices; then play the long side with a good stop loss. We should not be looking to win 2 points with these trades, but looking for big rides with winning ratios of 5 or 10 to 1. Like setting a 4% stop and looking for a 20% win.
Although, it is not easy to keep a trade open for so long.
We should be looking for the Apples, Googles, Amazons, etcetera of the last years. There have been many more extraordinary stocks in every world market.
Actually, except in major bear markets, there are always outperforming stocks.
We do not know what the next Google or Baidu will be, but we know stocks that are trading at their 10-year high.
How trade stock market
We just need to keep an eye on the stocks that are behaving well the last months. If there is one quoting high after high it means that someone big is buying it because “knows” something. We do not care what they know, but we know that they know, and that is enough. And sit tight, as Livermore would say.
The adequate asset to do this kind of operation is a stock. It is due to the colossal size of the stock market with its thousands of stocks around the world.
The CFDs that some providers offer are a good chance to trade these assets with little leverage. To do it directly we only have 2 to 1 leverage in the United States, and in some European brokers. A leverage of 2:1 is still good to do that. We do not need, nor should, trade leveraged 20 to 1 or so.
With all the stocks around the world, there are always some stocks somewhere, which are going up wildly.
If we were in the seventies of the Twentieth Century, we would have oil and gold stocks going up a lot.
In the eighties and nineties, tech stocks like Microsoft went to the sky.
Last years there have been tremendous rises in some stocks everywhere, from the internet stars in the United States to some European giants.
How to trade trends
We should not be interested in trading assets like the GBPUSD or EURUSD in the year 2013, not going anywhere.
Apart from stocks this simple “method” works well with other assets like commodities, currencies, and even bonds, where the big speculators have been riding the great bull market since 1980.
The ideal way to do this is not to bet all of our capital in the same asset, but to diversify, looking for some different assets that trade like that and going long accordingly.
Doing it we never should fall in love with a stock, we only fall in love with its behavior.