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- Getting lost when it’s wrong
No one likes to get hurt, but losing is part of making money. The stock market is unpredictable with 100% certainty and you have to accept that it’s OK to be wrong. When the market proves your decision wrong, take the loss!
- Run your profits when you’re right
If you are never satisfied with a transaction, it will return at least twice what you risk in the transaction. Of course, more is better; a transaction that returns 10 times the risk pays for 10 losers. Our natural tendency is to be afraid to let our winners turn into losers, and so we are quick to sell our winners at the first sign of weakness. But be aware of what most people are thinking, which means trends will start with back-and-forth movements because many investors lack commitment. But after a steady upward trend, fear subsides and the trend really begins to accelerate. That’s where investors can make the most money, if they stay long enough to enjoy the stock.
- Buy when panic is selling
The emphasis here is on panic selling, where overwhelming pessimism has people accepting prices that don’t make rational sense. Don’t confuse a bear market with panic selling; weakness isn’t a reason to buy unless it’s motivated by panic. Investment to the contrary is effective only if sentiment leads to a misunderstanding of stocks and panic comes with selling.
- Sell when you buy irrational
When the mass media espouses the virtues of an investment, when people who know less about investment than nothing are throwing money into the market, it’s probably time to become a salesman. If the upward trend goes from being linear to a curve, pay attention to signs of weakness as the upward trend approaches its end. At this point, the volume will usually be much higher than normal, and the stock will seem unable to do anything wrong.
- Value success in groups
Many of US rate our success based on one trade at a time. Trading is a game of possibility; you won’t always make money, so why beat yourself up with a few losses? The only way to assess success is the amount of money in your account through a large number of transactions. Don’t judge success by how often you’re right, it’s just about how much money you make from lots of transactions.
- Pre-trade testing
You need an advantageous strategy to make money in the market. Don’t invest in a hunch or what someone else tells you to do. Invest according to a set of rules that prove you’re invested and successful. Every major investor has a Formula, what is yours?
- Don’t follow the crowd
Average is what most people do; want to be average is only a small percentage of the population who have most of the money, and they do it from the largest group. If you want money to flow your way, you have to be in front of the crowd, do something before it becomes popular.
- Avoid headlines
Mainstream media seem to be making their big features on Sunday tops or market tops. If a media outlet has a large audience, its information is priced in by a large number of people. Always remember that there are only a small number of people who are beating the stock market, which means that if you’re doing what a large number of people are doing, you’re probably losing. Going up against the headlines will often be the winning strategy.
- Follow the ones on the news
Based on a trading strategy, or perhaps after an in-depth investigation, you buy stock on a tip. The stock declines and the market tells you you’ve made the wrong decision. Instead of taking the loss, you find a reason to go into the news and hang out. Perhaps more results are coming, or the administration has a proven track record. Any basic information that would justify holding the stock when the market tells you not to, will help you avoid that negative sense of loss. Remember, the market never lies, and investors ‘ collective opinion is based on all the information you look at. If what you’re using to justify the enclosure is such good information, why are others selling it?
- Keep it simple
Investors tend to become more sophisticated as they lose money. If a set of rules doesn’t work, they add more rules. However, it is not the rules that are often the problem; it is the application of the rules. People who make money keep it simple, but they work hard to be disciplined and callous. Easy to say, hard to do.