Investing In The Stock Market

Ah, yes, the good old stock trading system.  Picture this:  you sit down at your computer.  You fire up a program, hit the “refresh” button.  You go make yourself some coffee while the computer fetches the latest stock market data and crunches some numbers.  You return to your screen with some piping hot coffee in your hand.  Scrolling through the list of stocks, you see some “buy,” “sell,” and “hold” indicators next to each.  Based on this information, you make a few trades. The whole process takes you an hour or so in the morning.  After a year of this, you have enough money to retire to a private island.  Thanks to your special stock market software, work is a thing of the past for you.

Sound nice?  This kind of lifestyle is the promise of those selling stock trading systems.  According to these people, by analyzing stock market data according to their proprietary system, you can predict the direction of the stock market and make a fortune while working only a few hours a day.  Quite a nice gig, if you can get it.

photo credit: trader_john

The problem with this is that it is complete bullshit.  That’s right, none of these stock trading methods work.  It might be a sad thought, but the short story is that you should stop listening to those glistening sales pages, and think through the facts a bit.  Let’s consider what you are being offered.  These people have discovered a system that makes vast amounts of money for very little effort.  Rather than hoard the system for themselves and enjoy living a tropical island lifestyle, they are instead going out of their way to sell the system to people like you for a relatively small fee.

When you think about this, it doesn’t really make much sense.  If the system works, why give it away?  They would be much better off keeping things a secret, since any “system” that might actually exist will quickly stop working once people know how to exploit it.

Aside from this issue, I have to question whether such systems exist at all.  Since the stock market is based on the current status of companies and the emotions of investors, it doesn’t really make sense that looking into past pricing and volume information would leave any insights into the future of the market.  Looking for these patterns in the stock market charts is the equivalent of a fortune teller looking for the future in a pile of tea leaves:  she might get it right occasionally, but it really isn’t something to base the rest of your life off of.  The same goes for these types of stock market systems.

Of course, I’m always willing to be proven wrong on this one.  If anyone wants to show me how they have made consistent, long term money using some sort of a stock trading system, I would be happy to look into it.  For the moment, though, I think I will keep investing my money in normal, boring stock market strategies.