This seems like a no brainer but you might be surprised to know how many people are willing to put up their life savings when they don't even know how the markets work or even what a stock, option or future contract really is. Be sure that you understand the basics of what you want to invest in
thoroughly before you put any of your money on the table. If not, you may as well go to a casino and play with it there. Besides, that way, you get free drinks and you may need them.
EMOTIONS AND THE EFFECTS THEY CAN BRING
Probably one of the biggest down-falls of most traders is letting their emotions get in the way of trading decisions. To be able to trade profitably you must be able to ignore what your emotions will assuredly be screaming at you.
While the overall perception of what drives prices higher and lower are greed and fear. You have to, in your trading, eliminate these emotions from your trading decisions.
You must be able to make intelligent decisions based on training, experience and analytical assessments. If you allow your emotions to creep into your trading they will likely harm your results.
BUYING THE LATEST HOT STOCK
Many people trade in the latest hot tip that they received from a co-worker, their dentist or friend. Don't do your trading in this way. Don't buy the latest fad stock or sector. Try very hard to diversify your investments among many stocks in many sectors. Diversify your risks as well as your profit potential. In this way, you can likely benefit when one sector turns down as another turns to the upside.
PUBLICATION BUYING TIPS
Many people wait every month for the latest monthly edition of Money Magazine, Baron's or many other publications about what hot stocks to buy. Usually, immediately after these publications hit the news stands, the stocks recommended in these publications will go up due to the numbers of people that follow these investment tips. Quite often, after the initial buying surge of demand has been met, these stocks will sink back down to their previous levels for some support tests.
Many of these publications are published now over the Internet as the latest and greatest hot buying tips. But did you know that most or at least a lot of these recommendations are made as a result of the newsletter being paid by the respective companies for the promotion.
Be very wary of any recommendations that you receive in the form of emails and through the more traditional, newsstand publications. Most publications follow or try to set the latest fads for the markets. Treat them as such. Many publications have very good ideas promoted within their articles and it is entirely healthy to garner ideas from them. Just don't fall into the error of trying to chase their latest recommendations on an ongoing basis. Use their information in your search for your own recommendations.
P STANDS FOR PROCRASTINATION
A lot of investors, particularly newer ones, tend to want to have proof of what a stock or market is going to do before they are willing to jump in and try to make some money. To be a successful trader or investor, you must be able to do your own analysis and then act upon it before the rest of the crowd gets the same ideas.
If you have to wait to fully know what a stock is going to do you will likely miss most or all of the opportunity that you have found. If you finally know, then it is likely that the rest of the world also knows and that will usually be too late.
You have to be willing to take risks in order to be successful in this game. These risks can and should be controlled but there is always some risk involved. The rest of the trading world won't wait for you to make up your mind.
TRADING THE NEWS
One of the most difficult ways to trade the markets is to trade on the latest news analysis, commentaries and earnings reports. If you want to get into some very volatile trading then this is the area for you. If you can accurately predict how these will turn out AND how the market will react to them, you can be very, very successful while making some very short term trades.
This area of trading is probably one of the most difficult to do and be successful. Just because the latest information is positive about a company or stock does not necessarily make the markets think this is so. Often companies publish information that appears to be very good and bullish and the
markets take just the opposite approach and sell the stock off. It is amazing how the markets react to news. Usually it results in big percentage moves that occur very quickly as the news is disseminated.
In this area of trading, because of the very fast nature of the moves, it tends to lead traders and investors down the road of fear and greed discussed above. Unless you have access to the very latest information and can do a very, very quick analysis in your head, you will generally miss these
opportunities.
I hope these ideas and this newsletter have helped you to understand part of what is necessary for you to be a successful trader or investor. Stick with what you know and know it better than anyone else.