The Basics Of Stock Market Investing

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

In times like this, it’s always good to get back to the basics, so I thought I’d post a few basics of stock market investing for the self investor just starting out.  Note that some of these go against the conventional wisdom of Wall St, such as the buy and hold mantra.  It should now be crystal clear that Wall St never had your best interest. 

1. Fire your broker/investment advisor
2. Fire your broker/investment advisor
3. Learn to manage your own money.. nobody has more of a vested interest in your money than you do.
4. Cut your losses quickly and move one!  A stock or ETF has to double to make up for a 50% loss.
5. A 10% gain should almost never turn into a loss for you.. use trailing stops if you have to.
6. Learn the basics of chart reading – you don’t need a bunch of fancy indicators.  Just have a firm understanding of price/volume & support/resistance as well as some of the more common basing patterns such as cup with handle, flat base, double bottom, bullish triangle, head and shoulders, etc. I also like to throw in stochastics and MACD for oversold/overbought readings.
7. Use a top down approach – know the general health of the market first, then look at sector strength for trading ideas.  70% of stocks will follow the trend of the overall market, so sticking with the trend is critical.
8. Do not use margin in a bear market.  Leveraging in a bear market will be a disaster for most.
9. Don’t over trade.  Wait patiently for only the best setups.. there will be plenty of opportunity for profiting on both sides of the market.  Be patient and wait for your price.
10.  Averaging down may lead to large, unrecoverable losses ..particularly in a bear market.
11. Find your own trading style.  Some personalities will be better suited to a day trading approach, some better for a longer term approach.
12. Contrary to Wall St advice, throw buy and hold out the window – trade with the direction! 
13. Read William O’neils How To Make Money In Stocks

I’ll add a few more later as I think of them.  Feel free to add some in the comments area and I’ll include them with a link back to your site within the post.  Thanks!

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