How to invest in the stock market in the short, medium and long term

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It is very complex knowing how to invest your savings in the stock market in a profitable way. It really depends on the historical context in which you want to invest.

If we look at a long historical series of a market index (such as the Dow Jones) we note that the market trend is changeable: sometimes is positive, sometimes is lateral, other times produces marked corrections.

It really makes the difference choosing to invest in one period rather than another!

In these different time periods, we often hear people say that someone has earned a fortune on the stock market by investing a modest sum, but just as often other people have lost all their capital or their savings by investing in stocks, bonds, etc.

Some elements that cause bad investments in the stock market

Often the investment is collected by a bank operator who has to satisfy the coverage of a budget for a certain banking product. As a result, some people have been ‘cheated’ by financial institutions for buying high-yield bonds that later turned out to be ‘wastepaper’.

The recent bankruptcies of companies such as Parmalat, Cirio and some banks are striking examples of scams relating to savers’ investments.

Sometimes people desire to try some investments with online banks, which offer low-cost real-time trading. This choice can lead people to ‘burn’ their savings.

Someone start with 1000 euros, then with 5000 euros of loss, to get up to tens thousands of euros lost in transactions with the Forex or with shares. People often still invest with the hope of recovering the loss and end up losing more and more. Instead of making investments, some people may fall into a psychological trap similar to gambling.

In fact, often the trader is identified as the one who ‘plays on the stock market’.

The negative result in the stock market investment is often motivated also by a further wrong psychological attitude. When a novice investor gets his first earnings he doesn’t understand that this result is a lucky coincidence.

In fact, if the investor increases the positions to earn more and more, then at the end he loses all his portfolio.Greed is very dangerous in financial investments. It is a serious mistake to believe that we know more than the market itself, just for having read some information.

It is very difficult to know how to invest in the stock market, especially in the short term. It requires a very specialized training, with a long period of support and experience.

How to identify good investments in the stock market

After years of studies and experience it was understood that the dynamics of the markets is cyclical (although the price movements within the markets are always different). The condition for being able to invest in the stock market at the right time is knowing how to identify the birth of a cycle or an ascending market period and its conclusion.

However, a distinction must be made between investing in the stock market buying at the right time or trading to create value in the portfolio.

In the first case, it is necessary to purchase a series of products and wait for the end of the ascending cycle to resell them at an increased price.

In the second case there are various opportunities to increase the value of the portfolio. In a different part of the stock market cycle when prices will decrease, you can use all the financial instruments in order to gain ‘selling short’. ‘Sell short’ means having a financial difference on a product (such as stocks or futures) by selling at a price, and buying it back at a lower price at a later time.

In both cases, as mentioned in the preliminary part of this article, it is necessary to have a psychological and formative preparation to manage this type of activity in a professional way.

Regarding training, you can acquire an effective forecasting technique and a coating technique from potential losses in the event of denial of all those operating signals that led us to open a position. Let’s deepen these techniques.

A forecasting technique and a hedging technique to invest successfully in the stock market in a professional way

Even the most efficient and effective technique is free from errors or from ‘stop loss’. When we talk in a scientific way of the expected return of a security, we must always do it in a probabilistic context.

We could say in a certain context that it is very likely that the expectation of a currency or commodity pair will reach a certain target, for a whole series of scientific reasons. However, although it is likely it remains possible that the expected result will not occur.

For this reason, in addition to using a trading technique with solid theoretical foundations, we will have to apply a series of rules concerning money management, ie calculate the percentage of risk in relation to our investment capital.

This means that we should be able to exit the market when conditions change and not stay in it, holding on to a hope of gain.

In this regard, we invite you to read the 28 Gann Rules that will help the investor to make no mistake about the amount of portfolio invested and to have practical advices to improve the quality of trading operations.

In addition to these two important steps, the investment in the stock market must have a further consolidation phase, to be better protected. That is a Hedging technique, which allows in the event of financial shocks to recover all or a large part of the capital loss produced by the investment on the Stock Exchange

This type of technique is realized thanks to the use of the Call and Put options, very ancient financial derivatives that were used since the 17th century.

Today they are used more than ever thanks to the theorizing of mathematical models that approach a very truthful ‘pricing’ level, always taking into account the probabilities.

The most famous are those of the Nobel prize for economics Fisher Black and Myron Scholes, or Robert Engle and so on.

Let’s look again at the 3 ways for a professional investment on the Stock Exchange:

  • Using a performing trading technique;

  • Applying the money management rules;

  • Using a hedging technique through options.

Even in adverse market conditions, the investor will never lose his portfolio in financial speculation following these 3 operational modes, indeed he will be able to earn, although slowly.

Performance trading technique for investing in the stock market

The technique of the American economist W.D. Gann has a leading role among the various techniques that have more relevance in terms of results.

In his career he earned about $55 million until the ’50s. These earnings came 2/3 from the management of funds and a 1/3 from his personal portfolio.

These figures today amount to billions of euros.

The Gann technique bases the development of the financial trend on a mathematical-geometric vector model. From this model they can be derived, by studying the historical series of the security, the future time cycles of the market, the dynamic and static resistances and supports, the potential price movements with the price-time objective. Within this Blog there are many articles related to his technique. Let’s watch this video.

In the recent work “The Geometric Mathematical Mechanics of Financial Markets” all the theoretical and practical principles of Gann technique are highlighted, together with the most profitable strategies and positions.

Hedging technique to invest in the stock market

Once you have figured out how to trade with a good technique you will have to combine the investment with a hedging operation, such as a neutral Delta Synthetic Straddle.

This strategy involves the purchase of a quantity of Put or Call options in relation to the quantity purchased of the underlying. If we have bought Cfd or Future we will buy Put options, while if we have sold an underlying we will buy Call options.

In the first case the Strike Price of Put option will be at the same price as the underlying. This level is called At the Market (ATM) and includes a Delta 0.5.

In the second case the Strike Price of Call option will be at the same price as the underlying. This level is called At the Market (ATM) and includes a Delta 0.5.

When the underlying loses, the option gains. When the underlying gains the option begins to lose following a curve related to a risk factor called Delta.

Obviously in this operation there is a break-even point, beyond which the general economy of the operation will be in profit.

The purchase of the option has a cost, it is as if we were subscribing to a form of ‘insurance’.

This cost will therefore be deducted from the profit achieved with the investment on the Stock Exchange.

more information on how the options work, on the most profitable strategies and on the various Hedging techniques, watch the free video of the new book

If you want more information on how the options work, the most profitable strategies and the various Hedging techniques, you can see the free video of the new book “How to trade with Gann’s options and technique”. Watch the video and text excerpts.

Below we attach some articles in which we describe some operations carried out with the Gann technique in the various financial markets.