Stock Market Investing Made Easy

September 5, 2010 · Posted in Stock Market · Comment 

Investing in stocks could be really fruitful, provided the investor made his choices very clear. Why, one must invest in stocks? The simple answer is to make money and secure your future. However, there could be a lot of reasons for investing in stock market. In recent years, there has been a remarkable growth in the stock trading and, hence more and more numbers of investors are heading towards stock markets to try their luck and earn some handsome profits and income.

Magnetism of stock market is such that it attracts any investor. Certainly, the potential of stock market which help investors earn huge profits entice and compel them to invest their money in stocks. However, before you start investing in stocks, it is really important for you to conduct some market research about each individual stock you, want to invest in. Check for its growing capability and find out background of the performance of stock and the company to which it belongs. Researching always helps investors to take wise investment decision and ensure optimal returns.

However, investing in stock market is not that easy. If you are a beginner and do not know how stock market works then you could end up with huge losses. In such situations, instead of making money, you will lose the money invested and, hence have to pack your bags and leave this arena forever. To begin in stock market, it is always advisable to an investor to get right education about stock market and trading. Of course, initially you will make investing mistakes but it is a part of game and gives you opportunity to learn and gain experience. Make sure, you invest your money wisely and spread it in different positions (stocks). Investing your money in different stocks will help spreading and minimizing the risk involved.

What really you can do to begin your stock trading career is hire, an expert stock broker (full service) or investment advisor. These professionals offer best investing advice to the beginners and also manage their portfolios. Some brokerage firms offer extensive services like research and analysis of stocks you want to invest in. Such services help the beginners excel in their investing ventures. They use several tools and ratios to analyze the stocks and then suggest you to invest your money in it or not.

Services of brokers and investment advisors are effective but cost you huge sum of money that really eat up your profit margin. However, there are online stock trading companies available that offer similar services but at easily affordable and highly competitive price. Online trading is very fruitful as you can trade at any point of time from any corner of the world. All you need to have is a computer with internet connection and an online stock trading account.

So, now let us discuss how you can easily leverage stock investing to earn huge income and profits. Well, before you invest in any stock, you must ensure that you properly utilize fundamental and technical analysis of each individual stock. In fundamental analysis, investors calculate EPS i.e. earning per share of the issuing company. EPS will help you know whether a stock is over priced or ignored by the market. On the other hand, technical analysis focuses primarily on the company’s present financial condition and performance. It also analyzes historical patterns and recent market trends.

So, whether you choose online stock trading or hire a stock broker or investment advisor, you need to trade cautiously and with a positive attitude. In beginning you must stay away from aggressive stock trading and trade consistently to get experience and establish long term financial goals.

Author: Micheal James
Article Source: EzineArticles.com
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The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks

August 25, 2010 · Posted in Bonds · Comment 

Product Description
ONLY 150 NEW BOOKS LEFT! The Little Black Book has sold out of 3 print runs. Once these last 199 books are gone, NO ADDITIONAL COPIES WILL BE PRINTED! Are 1000% gains still possible in post-internet bubble markets? Absolutely! While most large cap stocks sluggishly provide single digit returns, microcap stocks offer the opportunity for amazing gains. Dan Holtzclaw, author of the best-selling book Penny Stocks: The Next American Gold Rush shows you how to beat the ma… More >>

The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks

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Stock Market Facts & Fiction

August 25, 2010 · Posted in Stock Market · Comment 

Millions of Americans invest in the stock market directly and many millions more invest in the stock market indirectly by owning mutual funds in 401k plans, IRAs and so on. Most don’t really understand their stock investment, and some are just clueless. Where do you fit? Here’s a morsel of stock market fact and some fiction.

The stock market goes up more often than it goes down… That’s a fact, and the reason stock investing has interested people for decades. However, the market goes through cycles that are difficult to foresee ahead of time. In other words, there are good times in the stock market and there are bad times.

People should invest money in stocks primarily to receive dividends… I call that fiction because the primary source of profits in stock investing comes from price appreciation. That’s a fancy term for rising stock prices. Some of the best stock investments over the years have paid virtually no dividends at all. They are commonly called growth stocks. If you pay $10 for a stock and sell it a few years later for $50, who needs dividends?

“Equities” is another term for stocks, and unless you have big bucks you can not invest money in them… Equities are stocks, they go by both names. Unless you consider a couple of thousand dollars a lot of money, the rest of the statement is not true. However, if you can not afford to take a loss do not make a stock investment.

The stock market pays 10% a year… Watch out for that one. Over the years equities have returned on average 10% over the long term. Last decade the average stock investment actually lost money. Stocks PAY about 2% yearly in dividends on average. When the stock market goes down over a period of years, these dividends help; but they won’t save you from taking a loss.

Equity mutual funds are a safe form of stock investing… If you don’t have the knowledge or experience or inclination to manage a portfolio of equities on your own, they are your best stock investment. But you don’t invest in them for safety. You invest for growth, to earn a higher return.

When you invest money with a financial planner, part of his job is to assure you make money in any stock investment he puts you into… Unless his or her name is Houdini, you’re asking too much. A financial planner’s job is to help you reach your financial goals as you expressed them to him. When the market’s down, the vast majority of people lose money in their stock investment. Period.

If the stock market falls 50%, and then goes up 50% you break even… Not quite. Ask those who were into stock investing in 2008 through 2009. If a $1000 stock investment falls 50% it is worth $500. If it then goes up 50% you’ve got $750. Learn to think in terms of percentages. Taking a big loss can set you back for years.

The best stock is often a penny stock… The greatest percentage gainers are often low- price issues, and can go up 1000% or more in a year. However, as a group they are very risky and not your best stock investment. If you pay less than $1 a share and the share price drops to zero, you’ve lost 100%, no matter how much you had invested. The majority of true penny stocks get cheaper and then disappear, worthless.

If everything in this article was obvious to you, you are obviously not clueless when it comes to stock investing. On the other hand, I like to write on a real basic level once in a while, because I’ve learned that most people don’t understand the basics when they invest money. It’s better to pick up a morsel of facts once in a while than to continue to invest money totally uninformed. It’s the fiction that can ruin your financial future if you don’t know the difference. Especially if a scam artist gets your name and telephone number.

Beating the stock market consistently is a very low-probability proposition. Very few professional investors can do it. The good news is that you do not need to beat the market to make money stock investing. But you do need to learn to separate fact from fiction.

Author: James Leitz
Article Source: EzineArticles.com
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Day Trading Robot Review and Experiment

August 24, 2010 · Posted in Penny Stocks · Comment 

I recently recommended that a friend of mine, my brother in law, who has never touched the stock market in his life give Day Trading Robot a try. For those unaware, this is a stock picking system which scours the market looking for the makings of profitable trends in different stocks and advises you to trade accordingly. You may be surprised by the results of our little experiment/Day Trading Robot review.

For the purposes of this article, my friend will be referred to as Ted. Ted’s been interested in investing in the stock market for years now, but has always been wary of the obvious risk involved, particularly in today’s market. I’ve been day trading for a few years myself, enough to know that the recession is anything but a bad thing at least for investors right now.

Ted put down $250 and I staked him another $250 for a combined $500, and he decided that if he lost this money then that would be a sign that stock market trading just wasn’t for him, let alone Day Trading Robot was a failure. I opened up an online trading account for him and showed him how to easily transfer the money to his account and the basics of how to enact a trade, all simple to pick up stuff.

I already have Day Trading Robot, so we simply used my “account”. I won’t get too technical in terms of the investment specifics, but long story short in the first week, the system recommended a total of 9 trades. 7 turned out to be winners, 2 did not. I want to clarify something for those who don’t know anything about this system or these kind of systems in general. Much like real traders, they don’t win EVERY single trade. But the best ones win the vast majority of theirs and the winnings more than make up for their losses.

In following every single one of Day Trading Robot’s recommended trades, that $500 turned into $1300 over the course of a week. While Ted almost begged me to let us cash out and sell off everything to get out while we were ahead, I had to almost insist that we stay in another week. The second week, the system recommended 11 trades, 8 were winners, we lost money on 3 of them. Ultimately that $1300 turned into $2200. Ted has since bought his own account for Day Trading Robot and continues to enjoy some extra income each week because of it.

The reason for Day Trading Robot’s high winning rate is simply because it’s a well designed system which analyzes real time market data around the clock and uses mathematical algorithms based on winning trading techniques to detect profitable trading opportunities. Again, you won’t and shouldn’t expect to win every single trade, but if you as I do place every single recommended trade, you will ALWAYS come out ahead. Sometimes it’s more, sometimes it’s a bit less, but it of course depends on your investment and is a fantastic way to earn some extra income without spending much time on it.

Author: Jonathan Langley
Article Source: EzineArticles.com
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Investing in the Stock Market

August 23, 2010 · Posted in Stock Market · Comment 

Naturally enough, most stock market investors want the value of the stocks in their portfolio to rise. The question of course is how to determine, before purchase and investing in stock market, the true value of a stock. A stock’s value will partly rest on whether it is likely to appreciate in value. Understanding whether such capital appreciation is likely depends on identifying the factors that could contribute to this.

At the risk of stating the obvious, let’s go (briefly) back to basics.

First, what is a stock or a share? A share is a part of a company, and the act of buying a share is essentially an investment in the relevant company’s ability to generate profits in the future. Obviously, (in most cases) companies that perform well will see the price of their stock rise, and companies that perform badly are likely to see it fall.

Second, what is a stock market. The stock market for a given listed company is essentially made up of two groups of individuals, those that wish to buy stocks in the company and those that wish to sell them.

So what is the rationale for the linkage between a company’s performance and the price of its stocks? Indeed, on some occasions it seems that the linkage does not exist – markets can appear to act “irrationally” in their pricing of stocks. However, in general, a stock’s price reflects the market’s “sentiment” about the stock’s true value, and hence whether it should be bought or sold. Where there is an excess of buyers to sellers for a given stock, that stock’s price will rise, and where there is an excess of sellers to buyers the price will fall, until (in both cases) equilabrium is reached. (It is important to note that stock price for a given company can fall even in circumstances where the company’s performance improves, for example in cases where the company, despite performing well, has nevertheless failed to meet the market’s expectations.) As such, it is important for investors to acquaint themselves with a company’s underlying financial performance prior to investing in its stock.

What are the rules for successful stock trading?

In order to succeed in the stock market, investors need to make independent judgments based on their own knowledge. The mentality of simply “following the herd”, that is, following the investment patterns of other investors, does not bring success in the stock market.

So what elements of the investment process are under the investor’s control? Try as they might, investors cannot exert any significant degree of control over the market. Only large financial institutions can affect the market in this way, and even those bodies only exercise partial control. However, investors can control the way in which they act, and this extends to the way in which they use their market information.

So what is the most effective way for investors to use market information to operate? The answer seems to be that investors should pre-determine logical rules by which they will operate in the market, and then dispassionately stick to those rules. As we know, rules in society exist to moderate and control social behaviour. In the same way, an investor’s own rules can logically influence his or her own investment behaviour, and remove the “emotional” element from trading. For example, rules should create a structure and pattern for the way in which a trader selects stock from the wide variety available. Often it is the trader’s ability to stick to these rules that proves the difference between success and failure in the market place.

There will always be room in the market for beginners to learn about the principles of successful investing and to conduct meaningful stock market prediction. But it is important that all investors, whether experienced or not, access the best advice available to them (i.e. retain the services of a reputable stock broker). There is no reason why those prepared to learn, to conduct research, and to operate in the market in a rule-based and disciplined manner, should not make profits from stock trading.

Author: Daniel Webb
Article Source: EzineArticles.com
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Extremely Profitable Penny Stocks – Free List

August 23, 2010 · Posted in Stock Market · Comment 

If you want to get involved in the Penny Stock market and you are looking for a Penny Stocks Free List you might be going about this the wrong way. Before you start investing in this highly volatile market, you need to learn to minimize your risk and maximize your profits!

You probably already know this, but Penny Stocks are Options just like the Blue Chips, but they trade for $5 or less a share. Additionally the Markets that you will find them on are NASDAQ Small Caps, PINK SHEETS, Over The Counter (OTC), Over The Counter Bulletin Board (OTC-BB) and the Canadian Venture Exchange (CDNX) you can visit any of these markets and get limited information on stocks that they have listed.

However, one of the biggest reasons that there are very limited Lists of Penny Stocks readily available is because of the nature of this market. In the vast majority of cases Penny Stocks are stocks that are based solely on Speculation. There is little to no history on these companies so Advisors have to really know about the company inside and out before they can make a solid recommendation. That is why investing in the Penny Market without Expert Tips can be very dangerous.

Blue Chips or Larger Stocks are different in the fact that these publicly traded companies on this market have a history. In many cases, a long history. Therefor it is very easy for brokers and analyst to find trends that can predict future gains. And that is why research for larger options is not the same as the penny options.

So, if you are just looking for a Penny Stocks FREE List thinking that once you have the ticker symbols you can start investing, you really need to slow down and do some research, or better yet, find an expert who has already done the research for you!

One of the best Penny Stock Advisors I know of is actually so confident in their Tips that they will give you $100 of their money to invest with. Below is a Penny Stocks Free Lists and the profits that I made from each one simply buying and selling when my Advisor told me to.

  • Naturally Iowa INC (NLIA.PK) $0.21 (10/07) $.040 (10/07) %2B 90% Gain My First Trade Made $85.50
  • Tara God Resources (TRGD.PK) $0.48 (10/07) $0.80 (10/07) %2B71% Gain Profit $100.16
  • Healthsonix INC (HSXI.PK) $0.15 (10/07) $0.22 (10/07) %2B46% Gain Profit $105.00
  • Holloman Energy Corp (HENC.OB) $0.94 (11/07) $1.17 %2B24% Gain I didn’t invest 0.00
  • Shiming US INC (SGUS.OB) $0.47 (11/07) $0.77 (11/07) %2B63% Gain Profit $180.00
  • Skinvisible INC (SKVI.OB) $0.18 (12/07) $0.15 912/07 -20% Loss I didn’t invest 0.00
  • TOTAL PROFIT FROM (12/07) TO (12/07) $470.50

Not bad for a first time investor! I knew the penny stock market was something that I was very interested in, but knew absolutely nothing about. As you can see, my amounts are small potato’s but not a bad profit for a small investor. My profits this year are even higher and I expect eventually to get a nice little income simply by following the Hot Penny Stock Tips from my Weekly Advisor.

Author: Janet Brooks
Article Source: EzineArticles.com
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Tips and Tricks to Invest in Penny Stock Trade

August 20, 2010 · Posted in Stock Market · Comment 

Money making through stock selling and buying has never been an easy task. Just take a look at the stock market and the number of companies involved in this activity and you will realize that it takes an investment of a significant nature just to become a stock market trader.

Penny stocks are an answer to stock trading making lesser investment and earning quite a good profit. Penny stocks can be slightly risky at times, but if followed the proper procedures and made a nominal investment through the help of a reliable stock broker, penny stocks surely give a good rate on investment.

Always remember that the companies trading for penny stocks have a lower market capitalization, therefore, these companies keep the face value of their share below $1. Penny stock companies do not have a large number of shareholders as they are small companies.

Due to the lower number of people trading on penny stock companies, the share price of penny stocks see quite a lot of fluctuation at both ends, therefore, it can be quite risky at times for first time investors. The penny stocks are not very smooth to trade, the pattern of the buying and selling trends varies, for which the investor needs to be very vigilant while trading.

Due to the lower value of penny stocks, it becomes easier for traders to buy a large amount of penny with lesser investment. There is not a lot of information available on penny stock trading which can benefit someone who would want to do the trading himself, hence, finding a good stock broker is a better option, or another option can be an expert on penny stocks like the consultants available online.

Penny stocks are a very quick way of earning profits. With a little knowledge and some informative tips like mentioned above can give you great benefits with a less amount of investment. In order to pick better stock options, you can also subscribe to the online penny stock newsletter like doublingstocks which send you recommendations regularly.

Author: Arindam Chattopadhyaya
Article Source: EzineArticles.com
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15 Great Day Trading Tips

August 19, 2010 · Posted in Penny Stocks · Comment 

Reports of investors making huge profits in the stock markets have been published in various newspapers around the world. This has pulled in many first time investors to the stock market. Day trading is one of the systems gaining in popularity with investors. But day trading is fraught with dangers. Though you are able to make vast gains in day trading, you’re also likely to lose huge money as well. Nevertheless, if you want to try day trading here are some tips to help you to succeed:

Who is a day trader? This is a person who actively participates in the stock market and buys and sells many times a day to make quick profits.This is what is known as a day trader.

What are the tips to succeed in day trading? Here are fifteen hints to help you along.

1. Study the basics of the system, like the workings of the market, which way the stocks will move, the long and short calls, and the time to buy and sell. You should also learn to take care of the profits while reducing your losses.

2. Since mastering day trading is a time devouring process, use the trading platforms available on the trading websites before you actually start.

3. Do not let the thought of making losses scare you. Use methods like stop orders. These will assist you to minimise your losses.

4. If you do suffer some loss, try not to be unduly concerned, as this is a part and parcel of the learning process you have to go through to become a more proficient trader.

5. Once you have achieved your expected profit, stop trading. Do not hunger after more money and throw away your hard won profit.Watch out for those two emotions of Greed and Fear.

6. If the market does not meet your expectations on any particular day, do not trade.No one can force you to trade and a day off occasionally is good for the Soul.

7. As your experience in day trading increases, you will gain the ability to foresee in which direction in stock price can move. But do not go for the topmost or the lowermost stocks.

8. If you find it difficult to decide in which way the market is heading, do not trade but be patient and just wait till things improve.

9. Maintain an accurate record of the results of the days trading. This allows you to learn the things which are effective, as well as ineffective.Plus they come in handy at Tax time.

10. Learn the buying and selling tactics of other successful day traders. They usually sell when there is good news and buy when there is bad news.

11. Do not get emotionally involved in trading but try to stay aloof and professional.

12. Rely on your instincts as well, for depending excessively on the analysis means skipping some good trading chances. Be flexible.

13. Learn and use top strategies to trade.

14. Concentrate only on a small selection of stocks. Focusing your attention on multiple stocks can make it difficult for you to track the movement of each stock effectively. Keep a sharp focus.

15. Learn new trading strategies daily and use them to your future benefit.Paper trading is a good way to fine tune your new trading skills without risking your hard earned cash.

Author: Chris Strudwick
Article Source: EzineArticles.com
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No Opinion, No Bias – Emini Day Trading

August 15, 2010 · Posted in Penny Stocks · Comment 

The online market is something everyone should get familiar with, even if it is just based on casual information. Its presence is undeniable and its purpose tenacious. It is a by product of the neo-liberal economic system simply delivering to the consumers a platform of fair game, ruled by financial and sometimes external factors, where money can be readily made. Emini day trading is one such platform that this article will be talking about today – although it might behove you know what there are many different sorts of trading platforms out there.

The choice of commodities available for trade are simply staggering, and with the explosion of the internet, more than 90% of tradable items on previously popular offline markets have made their transition to the digital superhighway. The day trade came as an alternative to the long view that most people were taking on their investment options and because of this, it was very popular at first. But numbers dwindled until a few core investors stayed; and this is due to the challenging nature of the market of day trading.

Emini day trading is sometimes compared to futures trading, and while there are similarities there, there are plenty of differences to set them apart. If you are considering any sort of a venture into the day trade, I would advice that you have at least some experience in the market before entering, because it can be a very unforgiving market. You need to be able to set aside at least 4 – 6 hours a day of your time to sit in front of the computer and make money, or lose money if you make the wrong decisions. The trick about day trading is to catch the smallest price movements, and this can be done through the use of swing trading or identifying the correct pivot points, but it can be a very tiring game.

There is a different approach and a set of rules that you may have to re learn when you consider the day market, because it is very different from taking the long view on your commodity. E-mini trading, now of the Emini Russell and the euro day trading – which a slightly more concentric look at the teaching methods into trading than the actual execution itself. Try and read up as much as you can on this sort of day trade, as it is a good choice to embark on your day trading career. One of the markets you should consider if you do actually want to trade is the Forex market and in my opinion, just exposure to it will teach you a lot about trading and investments – make sure to purchase a good Forex system when you start of as you need all the help you can get, and good systems have been known to make money almost immediately when tested on live markets. They cost and average of $50 USD, and that is a small price to pay for unlimited returns.

Author: John H. Anderson
Article Source: EzineArticles.com
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Stock Market Trading – Survival Kit For Newbie Investors

August 13, 2010 · Posted in Stock Market · Comment 

New to stock market investment? If your answer is ‘yes’ then read on. If your answer is ‘no’ then also read on, because to survive in stock market on long term we need to constantly remind ourselves of the simple age old and proven golden rules of investment in stock market.

At this point I am taking the liberty to seek a promise from newbie investors and that is a promise to not make the mistakes most seasoned investors have made sometime or the other in their lives. The harsh reality is that the market does not pardon mistakes and some mistakes can be almost fatal. You can avoid all these pitfalls by simply adhering to certain golden rules which I am terming somewhat flamboyantly as ‘Survival Kit for Newbie Investors’.

To further drive home the point let me present to you an unspoken secret of investors in stock market.It is on record that in Wall Street the seasoned traders/investors always talk of their profits and not the losses sustained by them. This gives newcomers the feeling that there is only money to be made in this market and hardly any chance of losses. But the damning truth is that if you do not enter the arena having donned adequate protective gear then the chances of losses are far too many. And your protective gear comprises of the golden rules contained in this ’Survival Kit for Newbie Investors’.

In case you manage to survive without the protective gears then you should consider yourself extremely lucky. If that is the case then you would be better advised to try your hand at a casino, since your Lady Luck is benevolent towards you. For most of the investors though, that is not the case and hence my over-emphasis on adhering to golden rules of investment. To stretch the point further I would strongly maintain that even with protective gear, you need to be always on your guard. Keep your guard up anytime and every time because a champion boxer knows that the moment he lets his guard down in complacency, he can be knocked out by a freak blow. In recent memory in India one is reminded of Satyam scam as an example of such freak blow.

The bottom line is, if you want to be a consistent champion investor you need to abide by some golden rules. If you have to err, then please err on the positive side. Make no such move that can erode your capital. So what if you have missed an opportunity, at least that mistake has taken nothing from your pocket which is a huge positive in a stock market. This brings us to an important issue of Capital Management which we shall discuss in the succeeding paragraphs.

Capital Management

Money invested in the stock market is your hard earned money. Preserve it with all your power of will and wit, because believe you me, its a jungle out there where might is right. If that is fully understood then lets go right ahead and enunciate few golden rules of Capital Management in stock market.

Rule #1. The capital that you employ in stock market should be from your disposable income. Under no circumstance should you violate this rule. This means that you should not ever take loan to finance your trade. To drive home the point let me remind you that Indian investors had taken huge loans from financial institutions ably aided by broking houses for the much hyped and overly priced IPO (Initial Public Offer) of Reliance Power. And they got bust!

Rule #2. In any single trade never commit more than 10% of your capital. In case it fails then you will not have to spend sleepless nights over it. And you will be in a fighting fit condition to recoup that loss in other trades. But just imagine if you were to commit 80- 100% of your capital in a single trade and it fails. You will be wiped out of the market for good.

Rule #3. Initially make it a habit to take out the profit you earn from stock market and keep it in separate bank account not linked to your trading account. You should keep on siphoning this profit till it equals the amount of your initial capital employed in stock market. For example you have done an initial investment of INR 1 million. You should take your profit out of your trading platform till your profit equals INR 1 million. Then you are mentally free to trade the market since you have fully secured your initial capital in this manner.

Rules enunciated above are to be adhered to in letter and spirit. You may crib about these rules since they may curb your style, but they are a must for your long term survival and success. Let me assure you that if you take few right decisions , it won’t take you more than a couple of years to accrue profit equal to your initial capital employed. And imagine a scenario only couple of years down the line when you are trading in the market with your initial capital fully protected by following Rule #3 above. You will have the psychological advantage to go aggressive in trade and make killings after killings. Of course those killing trades will have to be entered into with proper protection of stop loss order. Always remember to put on your protective gear, since its a war – a jungle war! Next we shall evaluate the efficacy of this protective gear called Stop Loss Order.

Stop Loss Order

Warren Buffet maintains that to be successful “you only have to do a very few things right in life so long as you don’t do too many things wrong”. But there is a catch here. You are bound to take many wrong decisions in stock market over the long haul. Warren Buffet was well equipped to avoid too many wrong decisions, besides being properly groomed in trading right from early childhood. A little known fact is that Warren Buffet’s father was a stock-broker and a parent’s influence at an early age in such matters can have tremendous advantage. But most of us are not so very well placed and hence will be prone to making many mistakes while taking trading decisions.If that be so then what is the solution? The solution lies in limiting your losses from wrong decisions by way of Stop Loss Order. We shall now postulate some golden rules in the words of a legendary trader W D Gann:-

Rule #1. Remember when you make a trade, you can be wrong, therefore place a stop loss order for your protection.

Rule #2. When in doubt, get out of the market.

Rule #3. When you have nothing but hope to hold on to, get out of the market.

With due deference to W D Gann’s rules, I would like to hazard a couple of exceptions to the general rule of applying Stop Loss Order in all trades. If you are an investor never put a stop loss order when the stock is trading 80% below its all time high. If you feel that you are entering into a good trade at that level, just go right ahead and buy without stop loss order. You will get a chance to exit honourably even if your trade goes wrong. Simply hold the scrip with patience.

Secondly, if you have confirmation that you are buying in the 2nd phase of a bull run then you may dispense off with stop loss order because the stock price is bound to move above the previous high. If you are not placing stop loss order, then you need to have a firm mind and not panic under any circumstances. Next we shall dwell upon certain issues relating to investor psychology.

Greed And Fear

As a new investor you have to first clear your mind of greed and fear. It is easier said than done. Yet you need to constantly remind yourself not to be caught in this trap of greed and fear. I say it is difficult because of the fact that greed and fear are part of basic human nature. You have to toil hard to go against the grain of basic human nature, and that is why I am harping so much on this point. But once you can achieve this frame of mind then you will be able to avoid the catastrophic events of stock market. Hear out what William Gross has to say – “Markets invariably move to undervalued and overvalued extremes because human nature falls victim to greed and/or fear”. By staying clear of greed and fear you will avoid the pain of regret as well as save yourself the pain of burning a hole in your pocket. Some of the golden rules are:-

Rule # 1. When faced with sure gains do not be risk-averse, while faced with sure loss do not become risk-taker.

Rule # 2. Beware of situations when high percentage of participants become overly optimistic or pessimistic of the future, it is a signal for the opposite scenario to occur.

Rule # 3. Never aim to enter or exit trade at exact market bottom or top. If you succeed to catch the exact market top/ bottom then you are lucky amongst millions, which most of us are actually not.

Rule # 4. Avoid entering trade in bubble situations and speculative runs. Sit on the sidelines till dust settles down.

There is a human tendency to give too much weight to recent experiences and extrapolate recent trends that are at divergence to statistical odds and rationale. That is how investors become more optimistic and aggressive in their trade when market goes up and more pessimistic than necessary when market goes down. Let greed and fear not grip you in such situations. Simply remember that what goes up has to come down, and vice versa. Laws of nature will ultimately govern everything in our lives and stock market is no exception. The legendary W D Gann gave utmost importance to the laws of nature and astrology while devising his super successful trading strategies in different markets. In the following paragraphs we shall  learn to pay our obeisance to the laws of nature.

Laws of Nature

We need to acknowledge the fact that Laws of Nature govern most of the events on this planet. It is ridiculous to try and defy the supreme powers of nature. If that is accepted then there will be no difficulty in following certain universal laws of nature that work even in stock markets. To be successful in stock market on the long run you will have to observe these laws with fanatical respect. Read on to familiarize yourself with some of these laws and make a strong mental note to follow them at all cost:-

Law # 1. Markets like everything else in life moves around in sinusoidal cycles. The cyclical nature means that you have to take the ups with the downs. Human emotions of euphoria and inflationary speculation ride the crest of the cycle, where as on the other extreme the emotions of despair and panic straddle on the trough of the cycle. Have the strength, courage and conviction of avoiding such extreme herd mentality while investing in stock market.

Law # 2. Market manipulations are possible only in the short term, thereafter laws of nature take over in the long run. Primary trend cannot be manipulated . No single individual or group of individuals can exert influence on the major trend of the market.

Law # 3. Good days cannot continue in perpetuity. There will be good days with the bad. This means that even the best of companies will have to encounter some bad days along its journey. Which brings us to the point that if you believe you are secure from losses by investing in a good company, it is untenable. So do not be emotionally attached to any company. If the situation so demands then do sell X company and enter into a more promising Y company. At the end of it you are in stock market to make money, not to buy ownership of companies. Keep an open mind and do not be dogmatic about which company you buy. As far as you are concerned all businesses are good so long as your buy trade gives you return of your choice.

Law # 4. Persistence on luck leads to bankruptcy. This behaviour of over-dependence on luck is manifested in stock market in the form of over-trading. One of the biggest blunders of traders is the desire to get rich in a jiffy and hence they over-trade. This calls for heavy dependence on luck. There are numerous examples of big and seasoned traders getting jettisoned out of stock market forever, only due to over-trading. You should guard against this evil with all your might, by strictly following the rules of capital management and stop losses.

Mind Game

You may think I am kidding, but stock investing is basically a mind game. It tests your character and strength of your mental fabric. If you have any doubt then as you read on you will realize the veracity of my statement. For the time being, simply promise yourself to follow these rules which govern your thinking while investing.

Rule # 1. Do not change your mind after placing the stop loss order. Many traders who had wisely put a stop loss order, cancelled the same once they saw that the market is going against them. Some shift the stop loss level to try and give time for market to move in the desired direction. This is a seriously flawed behaviour and may result in great losses. It is seen that 90% of the time a trader will be a winner if he maintains the original stop loss level and refrains from cancelling it. When you cancel a stop loss order you are merely hoping against hopes that market will reverse its direction and move in the direction of your trade. This can have a disastrous outcome.

Rule # 2. Be firm in your mind while initiating a trade. You must decide to enter a trade after having given due thought to it. It must be done after you are fully satisfied, having done adequate research/consultation. How can you buy stocks when you don’t buy vegetables without making elaborate enquiries about the right price!! But once you have arrived at an informed decision then be firm in your thinking and do not change your mind or cancel the trade without adequate reasons.

Rule # 3. Should the market reverse direction never let a profit run into a loss of capital. This can be done by raising the stop loss level progressively. This system of progressively increasing the stop loss level will ensure that you roll your profits and cut losses. But the basic mistake that traders have been doing since time immemorial is that they cut their profits short out of fear, and roll their losses on the hope that the market will move in the desired direction. This is a serious mistake and should be avoided at all cost. Be resolute in your mind and use your stop loss orders effectively, and progressively increase them to stay with the trend, till the stop loss order is triggered.

Author: Archana Debnath
Article Source: EzineArticles.com
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