It's easier to lose money in the stock market than make it. Ten percent of traders go bankrupt, according to Mark McRea of Sure-Fire-Forex Trading. That should scare anyone investing in the stock market enough to find out why. McRea states the reason many investors lose money is because while most are educated, they don't know enough about the stock market. Successful investors routinely follow certain guidelines in order to make profits.
Cut Your Stock Market Investment Losses
If you really want to make money in the stock market, cut your losses. Investor Warren Buffett is fond of saying there are only two rules in the stock market: "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."
Not losing in the stock market may look easy on the surface. It's impossible to never lose money on the market. A big red flag for Bernie Madoff's scam of the century was that his reports showed his stocks were always going up. Whistle blowers said that was their first clue.
Smart investors lose, but they only lose a little before they move on to the next winner. Stocks rarely go straight up or down. They fluctuate just like to market does. Smart investors stem losses by refusing to lose more than 7, 8 or 9 percent on a stock, according to William O'Neil, author of "How to Make Money in Stocks."
O'Neil feels so strongly about keeping your losses small that he states this one technique is actually the real secret to making money. Too many investors let small losses become big ones. All losses start off small. Knowing when to take the money and run and continually following that rule is the secret to making millions of dollars in the market, according to O'Neil.
If you are an emotional person and hate losing, implement an online stock market with a trading company such as Scottrade or TD Ameritrade and get used to making your trades using a stop limit or limit order. Limit and stop limits allow your stock to automatically be sold when it reaches a certain price or percentage. That way, if you decide to sleep in one day, thinking your China solar trade has been skyrocketing of late and will continue doing so and the Chinese government decides to raise their interest loan rates and your stock plunges 12% in a couple of hours, you'll limit your loss to the 7 to 9 percent you've limited your trade to instead of plunging 12%. Then you'll be able to move on to your next winner and wipe out your small loss with a gain,
Stock Market Investing is a Learned Skill
Learn about stocks before investing. Online trading services such as eTrade and Scottrade have free tutorials investors with accounts use to train themselves. Never invest in stock based on gossip, or so-called "informed sources." Take free online courses from sources such as Stockcharts.com and learn how to read and study chart information. Learn the terms commonly used in the stock market. Don't go into the stock market blind.
Do your own homework on companies through Standard & Poor's Ratings Guides. Follow financial news of companies you invest in. Proficient investors spend 30 minutes to 2 hours per day studying the market and looking for companies that have growing stocks and offer promising returns. They don't guess.
Stock Market Investing Requires a Smart Strategy
Implement a strategy to make money. Don't just hold a stock hoping for a 100 or even 50% profit. Learn to invest for a set percentage such as 15, 20 or 25 percent. Since the market goes up and down, the price of your stock will as well. If it goes down to your set loss percentage, cut your losses. Otherwise, set a specific percentage gain, then sell your stock when it reaches that number.
While you have shares you've invested, don't rest on your laurels. Actively research and look for similar companies that may offer solid returns. Remember, stocks fluctuates and so does the market. That's why smart investors realize the key to making money lies in getting into a stock for a limited time when it's having a little rise in price. Then they get out after a pre-determined percentage of 15, 20 or 25% and invest in something else they've carefully researched.
Smart Investors Closely Follow Market Direction
Diligently follow market direction. According to O'Neil, three out of four stocks follow market direction. That means if there is a fierce downturn in the market, your chances of making profit drastically go down. Bear markets have wiped out fortunes.
Don't overlook the power of waiting on the sidelines until a poor market shows more promise. And while you're waiting, you're still in the action. Continue your diligent research so you can invest in winning stocks when market direction changes. Even in a terrible bear market, upswings in the market occur for days, weeks even a month at a time.
The key to winning in the stock market is trusting your research, only making decisions based on solid research and keeping your losses small. Your goal is not to win every time. It is simply to win much more than you lose.
Be sure and check out my review of The Successful Investor by mega-millionaire stock trader, William O'Neil.
Sources:
O'Neil, William, How to Make Money In Stocks: A Winning System in Good Times or Bad, McGraw Hill, 2009
Rose Smith - Rose Smith is a lifestyle expert, writer and floral designer. She is author of two books, 101 Ways To Date Your Mate: Hundreds of Fun and ...
