Best Investment Advice

When reading articles on trading websites and in an occasional investment newsletter, you see it over and over. Subscribers are looking for that one “fantasy” stock pick that will make a $500 investment turn into enough money to make them wealthy. Others say they have a fool poof investing system, except that when you test it for yourself, you find that it only works in a bullish market. And why aren’t there as many day trading/investing systems around now as in the late 1990’s?

What is rare though, are investors who actually have an investment plan based on solid stock investing concepts. A precise set of rules telling them when they should buy, how long they should hold, and where to place their stop loss. This is what separates the successful investors from the rest. How much should an investment strategy like this cost? Only a few minutes of your time!

It’s not difficult to let your emotions get in the way of your stock market investing strategy. Happiness results when our research pays off with a profit, and sadness and frustration occur when we go against our own logic and place that sell order. We’ve all been there. Unfortunately, we’ve done that quite a bit. It’s important to remember that the best investment strategy is to preserve capital. It makes sense when you read it, but how many times have you watched a minimal loss turn into a much more significant loss just because your instinct told you it would move higher?

And how many times did you turn the loss incurred above into an even greater loss? A 50% loss means you have to acquire a 100% gain just to break even. While the world of penny stock investing supplies opportunities, few of them will give you a 100%. With medium to large cap investing, it takes a lengthy period of time with a successful company to get that 100% return. Stop turning your small losses into larger ones by not adhering to your stock trading plan. What should you include in your best investment plan?

1. Starting capital. It’s important to become familiar with how much money you are putting at risk on a typical day. It’s a possibility that you could invest in a business, and find out later that day that its shares are being delisted. Just because you invest a few thousand dollars at the beginning of the day, doesn’t mean you will have the equivalent sum at the end of the day. Set limits based on an amount you are comfortable with. Preserve capital.

2. How much money are you prepared to lose per trade? Successful investors ask themselves this before they invest. For example, if $1000 is an acceptable amount for you to lose today, it becomes easier to determine where your stop loss should be.

3. Where is your stop loss? Are you setting your stop loss based on share price? Are you setting your stop loss based on the total amount you are prepared to lose today? Are you setting your stop loss based on a percentage of the trade or a percentage of your trading capital? Do you have a plan for a trailing stop loss?

4. Entries – at what point do you enter a trade? Is it based on a price? Do you try to time the bottom of a trend? Are you placing a buy stop to take advantage of momentum? Did you hear exciting news about a particular company this morning? Did you find something of interest in one of your stock market newsletters?

5. Did you sleep well last night? If you’re having a lousy day and wished you would never have gotten out of bed? Don’t starting trading in a bad mood and lose all of yesterday’s gains!

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