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Investing for the first time can be daunting for those who aren’t familiar with stock market patterns. Take it from investor and author Jason Brown, who said he lost $1,300 his first time investing.
Brown recounted on Yahoo Finance’s Financial Freestyle podcast how he took the $2,000 he was given for his high school graduation and asked the bank to invest it in aggressive funds. When he returned two years later, his initial investment was worth just $700.
Brown reinvested most of what was left of that investment. However, it wasn’t until he learned to watch market patterns that he was able to actually make money, he said.
“When I made my first $100, that made me realize the power of patterns,” Brown said (see video above or listen below).
Once he felt confident that he understood how stock market patterns worked, Brown took out a $10,000 student loan and invested it all in the stock market.
“[I] grew it to over six figures,” he said. “But I had to practice with my 500 bucks to have the confidence to take that $10,000 student loan to get there.”
Brown said that uptrending, downtrending, and sideways channeling are the three most profitable patterns investors should learn.
“Those are the three basic ones that most people should start with because they’re easy to recognize, and it’s super profitable once you get good at spotting,” Brown explained.
In a sideways channel, the price of a stock remains generally steady, giving investors an idea of the price range at which that stock might be considered undervalued or overvalued. Being able to spot ascending and descending trendlines can also be lucrative for investors.
Brown added that he mostly trades options instead of individual stocks, which are often done on a contract basis. Before choosing investments, though, he recommended looking at the company’s previous trends to understand how their stocks typically behave.
“When you’re looking at the technical analysis of the chart, you typically want to look at six to 12 months, so that will give you at least four quarters of earnings and a nice range to kind of see what the pattern is,” he said. “You want to look at about a year if you’re trading, but then you can buy options. You could buy options that are as far out as three years … You can be super safe.”
He advised against short-term trading, especially for early investors. Trading on time frames anywhere from 30 days to six months can be risky unless the investor feels confident they understand the trends of the investments they’re making.
