Buy stocks for short term gain (days or months instead of years)
Use good money management to reduce my risk and increase my return
Watch out for a stock traders greatest enemies -- Fear and Greed
But you have to buy and hold stocks for the long term, or invest in mutual funds to make money in the stock market, don't you??
That's what the "experts" say, isn't it. I just always assumed that they were right and never looked into investing in stocks. Then I found stock games / simulations. I didn't do that well in the game (it's way more fun when you play with REAL money), but it ignited my interest in making real money in the stock market. I started an e*Trade account in January of 1999, and have been making (and losing, sometimes) money ever since.
The most reliable way I've found to make consistant money so far is by finding a stock that is in an uptrend, or is trading in a consistant range, then buy near the bottom of the dips and sell near the peak. So far, I've pretty much made money by following this method, and lost money or broken even when I've tried something else. The most improtant rule I've come up with is to have a plan BEFORE OPEN. I'll have a short watch list with less than 10 stocks, and have my purchase price (I almost always buy with limit orders), stop loss price, and my sell price for each of the stocks. If I can't get in at or below my purchase price, I won't chase a stock up. If it goes below my stop loss after I buy it, it gets sold. When it hits the sell price, I'll sell it. When I try to make decisions on the fly, I tend to get very sloppy and start losing money. It may just be because I'm new at this, but for now I'm really religious about sticking to my plan I made before the market opens.
It is way easier to lose money trading stocks (but not as fun :) ). I've been frequenting the #daytraders IRC channel since I've become interested in stock trading. I see new people buying stocks all the time without having a clue what they are doing. They don't know a margin call from a limit order. They don't know how to get real time quotes for the stock they just bought. They ask over and over if they should sell now, or hold their stock, hoping someone else will tell them what to do. They buy at obvious tops, and sell at obvious bottoms. These people are just sheep on the way to the slaughter. If you don't want to take the time to learn what you're doing, and instead decide to just follow the advice of a "shepard" (a stock analyst, a chat room "guru", or an investment web sight), you'll end up being mutton chops.
Isn't it important to know all about a company before you invest in it?? How else would a person find a company to invest in??
Well..., I don't think it really matters what the company does, what it's stocks P/E ratio is, or even the name of the company (I do usually look right before or right after I buy a stock just because I'm curious). All that matters is how much some one will pay you for the stock when you're ready to sell it. The only way I've found to do this somewhat consistantly is with technical analysis. Technical Analysis is the practice (or maybe art) of looking at charts of stock prices and sales volume and indicators derived from them, and forecasting what the stocks price will do in the future. No one can always correctly predict which way a stock will move, but with TA, you should be able to achieve a better than 50% success rate. If you are right more than you're wrong, you should be able to make money.
I belive that the most important part of TA is using trend lines and identifying support and resistance. There are a lot of complicated indicators that people use, but without knowing where the support and resistance for a stock is, the other indicators are pretty worthless. Stock prices usually don't go up and down in a straight line, instead they go up for a few days, then go back down for a few days. If you can identify when and near what price the stock will change direction, and buy and sell at those points, you can make WAY more money than the person who is holding the stock long term.
PICTURE HERE (Stock uptrend with trend lines and comp of buy and hold vs. short term)
I also use a couple of indicators along with my support and resistance lines, and my trend lines. Stochastics and MACD are probably the two that I find the most useful.
You can't really make money if you aren't always right about your stock picks, can you?
You have to be careful with your money. With out it, you don't get to play in the market anymore. I feel sorry for the people who put all their money into a single volitle stock, then do nothing as it plummets down in price. They didn't plan before they bought the stock what to do if the stock price dropped after they bought it, so they were clueless when it happened.
Fear and Greed can be your best friend (if it's someone else who's being fearful or greedy!)
If you don't already know what you're going to do with a stock before you buy it, you're going to lose money. You need to know what you will do if you stock goes up a little or a lot, goes down a little or a lot, or stays at the same price that you bought it at.
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Last revised: July 02, 1999 |
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