No matter how smart you are or how much trading experience you have, you must follow rules and avoid crucial mistakes to be a successful investor.
October 20, 2006 (Press Release) --
No matter how smart you are or how much trading experience you have, you must follow rules and avoid crucial mistakes to be a successful investor.
Newsletters, investment advisers and various software programs may claim they've found the Holy Grail. But when it comes to trading, the key to success lies within us. It is the ability to master trading rules, avoid big mistakes and continue to learn that will have the biggest impact on your portfolio. Here are key tips to success:
Cut losses short. The primary reason people lose money in the stock market is that they don't cut their losses. Always sell a stock if it falls 8% below your purchase price. Think of it as a small insurance policy to avoid large losses. This is one of the hardest things for people to do, because it means having to admit they're wrong.
You can't expect to be right all the time. So when you do take a loss, make sure you lose the least amount of money possible. Investing is one of the most humbling endeavors one can take on. Holding onto losing stocks because of pride and ego can lead to more devastating losses.
Follow buy and sell rules. Buy quality stocks with top fundamentals as they break out of sound bases. Use charts to spot the proper buy point. Only buy stocks that are within 5% of that buy point. Top-rated stocks, breaking out of proper bases, rarely fall more than 8% below their proper buy points during a bull market.
Avoid cheap stocks. Bargain hunters believe they're getting a bigger chunk of a stock for less when they buy low-priced stocks. But stocks below $10 are more volatile and risky. Most institutional investors avoid such stocks because it takes only a little price movement to make large percentage swings. Think in terms of total dollars when you invest, not number of shares.
Don't bottom-fish. A corollary to avoiding cheap stocks is this: Don't buy stocks falling in price or coming off their 52-week lows.
The "buy low, sell high" myth could lead to serious losses, because it's hard to know when you're at the absolute bottom.
Often, trying to buy a falling stock can have the same effect as trying to catch a falling knife -- you're liable to get hurt.
Stocks bouncing from the lows also run the risk of running into overhead resistance when they try to move up.
Practice patience. The hardest thing for investors to do is sit on their hands and wait. Investing is a long process. Legendary investor Jesse Livermore said it is never your best thinking that makes big money. It's the sitting.
Impatient people want to make easy money fast. The drive to make a fast buck leads many to throw discipline out the window and jump into a stock too fast without doing the necessary homework. Ironically, acting in haste often makes people slow to cut their losses when a trade goes against them.
Control your emotions. Look at stocks objectively and don't let emotions guide your decisions. Be aware of your emotions, because fear and greed can cloud your perceptions.
Avoid basing decisions on somebody's opinions or because of something you know. Most big winners are new companies that haven't even been mentioned on CNBC. By the time they make the headlines, it's often too late to get in because everybody knows about them and they're not able to attract new buyers.
Learn from your mistakes. Successful investors often start by getting a degree in losses. Do a post-mortem on both your losing and winning trades and take a lesson from each. Do you have any bad habits? What are you doing to change your behavior? Stock investing takes years to learn to do right. Set aside time to study and improve your skills.
Author: Trang Ho
Source: http://biz.yahoo.com/
Newsletters, investment advisers and various software programs may claim they've found the Holy Grail. But when it comes to trading, the key to success lies within us. It is the ability to master trading rules, avoid big mistakes and continue to learn that will have the biggest impact on your portfolio. Here are key tips to success:
Cut losses short. The primary reason people lose money in the stock market is that they don't cut their losses. Always sell a stock if it falls 8% below your purchase price. Think of it as a small insurance policy to avoid large losses. This is one of the hardest things for people to do, because it means having to admit they're wrong.
You can't expect to be right all the time. So when you do take a loss, make sure you lose the least amount of money possible. Investing is one of the most humbling endeavors one can take on. Holding onto losing stocks because of pride and ego can lead to more devastating losses.
Follow buy and sell rules. Buy quality stocks with top fundamentals as they break out of sound bases. Use charts to spot the proper buy point. Only buy stocks that are within 5% of that buy point. Top-rated stocks, breaking out of proper bases, rarely fall more than 8% below their proper buy points during a bull market.
Avoid cheap stocks. Bargain hunters believe they're getting a bigger chunk of a stock for less when they buy low-priced stocks. But stocks below $10 are more volatile and risky. Most institutional investors avoid such stocks because it takes only a little price movement to make large percentage swings. Think in terms of total dollars when you invest, not number of shares.
Don't bottom-fish. A corollary to avoiding cheap stocks is this: Don't buy stocks falling in price or coming off their 52-week lows.
The "buy low, sell high" myth could lead to serious losses, because it's hard to know when you're at the absolute bottom.
Often, trying to buy a falling stock can have the same effect as trying to catch a falling knife -- you're liable to get hurt.
Stocks bouncing from the lows also run the risk of running into overhead resistance when they try to move up.
Practice patience. The hardest thing for investors to do is sit on their hands and wait. Investing is a long process. Legendary investor Jesse Livermore said it is never your best thinking that makes big money. It's the sitting.
Impatient people want to make easy money fast. The drive to make a fast buck leads many to throw discipline out the window and jump into a stock too fast without doing the necessary homework. Ironically, acting in haste often makes people slow to cut their losses when a trade goes against them.
Control your emotions. Look at stocks objectively and don't let emotions guide your decisions. Be aware of your emotions, because fear and greed can cloud your perceptions.
Avoid basing decisions on somebody's opinions or because of something you know. Most big winners are new companies that haven't even been mentioned on CNBC. By the time they make the headlines, it's often too late to get in because everybody knows about them and they're not able to attract new buyers.
Learn from your mistakes. Successful investors often start by getting a degree in losses. Do a post-mortem on both your losing and winning trades and take a lesson from each. Do you have any bad habits? What are you doing to change your behavior? Stock investing takes years to learn to do right. Set aside time to study and improve your skills.
Author: Trang Ho
Source: http://biz.yahoo.com/
Email
Print
SPAM
LEAVE A COMMENT
