How to Make Money in Stocks

Good morning, HX Daily reader!

We have some exciting developments in store at HX Research in the coming months.

Our paid subscribers have already been reaping the benefits of our new proprietary software, Signal Trader Pro (STP).  – Signal Trader Pro or “STP.” STP takes cutting-edge Wall Street technology of ALGORITHMIC TRADING and puts it directly in your hands.

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We appreciate your support and look forward to making you some money!

– Enrique Abeyta

There are a few investors and writers who have had an outsized influence on my investment philosophy.

The most important of those by far is William O'Neil.

O'Neil was born in 1933 in Oklahoma City and grew up in Texas, where he studied business at Southern Methodist University and also served in the United States Air Force.

He began his career on Wall Street at stockbroker Hayden, Stone & Company and was one of the first to use computers in developing an investment strategy. At 30, he founded his own company – William O'Neil + Co. Inc. – and bought a seat on the New York Stock Exchange.

His company developed the first computerized daily securities database and pioneered quantitative analysis of stocks. He eventually launched a business newspaper, Investor's Business Daily, and authored several books.

The most famous of these books is "How to Make Money in Stocks," published in 1988. If there were one book we could recommend on investing it would be THIS book.

O'Neil's system (called "CANSLIM") encapsulates what we consider the best and most successful investment strategies.

Here are quotes from O’Neil that capture some of his wisdom…

A great trader once noted there are only two emotions in the market: hope and fear. “The only problem,” he added, “is we hope when we should fear, and we fear when we should hope.” This is just as true in 2009 as it was in 1909.

Another popular version of this concept is the idea of “fear and greed.” We think both ideas are correct.

What we like about this quote is O'Neil's insight that the markets don't really change. As long as we have human beings actively involved in them, we will have emotions play a role.

The path may evolve because of technology, but the underlying drivers of the stock market – human emotion – remain the same.

The moral of the story is: never argue with the market. Your health and peace of mind are always more important than any stock.

This brings up one of our favorite concepts – in the stock market, PRICE = TRUTH.

We often will newer investors to let the market tell you what is happening and not the other way around.

O'Neil also captures the critical role of your frame of mind. Mastering your psychology and putting yourself in a position to win is an absolute must to be a successful investor.

Plot out your mistakes on charts, study them, and write some additional rules in order to correct your mistakes and the actions that cost you money.

One aspect of O’Neil’s method is key to our own investment philosophies.

When he began his career, O’Neil set out to look at what characteristics the best stocks of all time had in common.

Instead of hypothesizing, he went to the real-world data and figured out what REALLY worked.

He then created a system to identify those kind of stocks.

This method is as essential for finding winners as eliminating your losers.

It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.

This is why, when looking to buy oversold stocks, we usually look for them to show some initial recovery before initiating a position.

It is also why, while we might avoid overbought stocks, we do NOT short them.

At least 50% of the whole game is the general market.

This is literally the most crucial aspect of trading and one that very few investors acknowledge.

The existing stock market environment will drive the majority of the short-term price action.

As a trader, you can make money in both BULL and BEAR markets, but the strategy will be different.

Both types of markets persist for a while and create well-established trends.

The FIRST decision you must make every day when trading is to decide what type of stock market environment we are in at THAT moment.