12 Basic Stock Investing Rules Every Successful Investor Should Follow
The best way to keep up with the latest on stock trading is to constantly stay on the lookout for new information. Current info
is not always the easiest thing to locate. Fortunately, this article includes the latest available.
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There are many important things you need to know to trade and invest successfully in the stock market or any other market. 12 of
the most important things that I can share with you based on many years of trading experience are enumerated below.
1. Buy low-sell high. As simple as this concept appears to be, the vast majority of investors do the exact opposite. Your ability
to consistently buy low and sell high, will determine the success, or failure, of your investments. Your rate of return is
determined 100% by when you enter the stock market.
2. The stock market is always right and price is the only reality in trading. If you want to make money in any market, you need
to mirror what the market is doing. If the market is going down and you are long, the market is right and you are wrong. If the
stock market is going up and you are short, the market is right and you are wrong.
Other things being equal, the longer you stay right with the stock market, the more money you will make. The longer you stay
wrong with the stock market, the more money you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have gone down, will go up. The more extreme
the move up or down, the more extreme the movement in the opposite direction once the trend changes. This is also known as "the
trend always changes rule."
4. If you are looking for "reasons" that stocks or markets make large directional moves, you will probably never know for
certain. Since we are dealing with perception of markets-not necessarily reality, you are wasting your time looking for the many
reasons markets move.
A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why
markets do anything. To make a profit trading, it is only necessary to know that markets are moving - not why they are moving.
Stock market winners only care about direction and duration, while market losers are obsessed with the whys.
5. Stock markets generally move in advance of news or supportive fundamentals - sometimes months in advance. If you wait to
invest until it is totally clear to you why a stock or a market is moving, you have to assume that others have done the same
thing and you may be too late.
You need to get positioned before the largest directional trend move takes place. The market reaction to good or bad news in a
bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative more
often than not.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make sizeable money. The key
is to know when to get aboard a trend and stick with it for a long period of time to maximize profits. Contrary to the short term
perspective of most investors today, all the big money is made by catching large market moves - not by day trading or short term
stock investing.
7. You must let your profits run and cut your losses quickly if you are to have any chance of being successful. Trading
discipline is not a sufficient condition to make money in the markets, but it is a necessary condition. If you do not practice
highly disciplined trading, you will not make money over the long term. This is a stock trading system in itself.
8. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. The
Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a
well known economist.
The perfect competition model is not based on anything that exists on this earth. Consistently profitable professional traders
simply have better information - and they act on it. Most non-professionals trade strictly on emotion, and lose much more money
than they earn.
The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling
low for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets. Successful
market timing is possible but not with the tools of analysis that most people employ.
If you eliminate optimization, data mining, subjectivism, and other such statistical tricks and data manipulation, most trading
ideas are losers.
10. Never trust the advice and/or ideas of trading software vendors, stock trading system sellers, market commentators, financial
analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully
for years.
Note those that have traded successfully over very long periods of time are very few in number. Keep in mind that Wall Street and
other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading
decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is take a large loss on their position or portfolio. Market timing can help avert this
much too common experience.
You can avoid making that huge mistake by avoiding buying things when they are high. It should be obvious that you should only
buy when stocks are low and only sell when stocks are high.
Since your starting point is critical in determining your total return, if you buy low, your long term investment results are
irrefutably better than someone that bought high.
12. The most successful investing methods should take most individuals no more than four or five hours per week and, for the
majority of us, only one or two hours per week with little to no stress involved.
About the Author
C.C. Collins is a Financial Planning Advisor and Author of Scientific Wealth Strategies at http://www.wealthscientist.com Find more information at http://www.stockinfo4u.com
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Hopefully the sections above have contributed to your understanding of trading stocks. Now might be a good time to write down the main points.
The act of putting it down on paper will help you remember what's important.
Of course, it's impossible to put everything into just one article. Even if you don't know everything about stock trading, you've done
something worthwhile: you've expanded your knowledge.
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