subject: Stock Market Secrets You Can't Ignore [print this page] While there is someone on just about every corner claiming to have the stock market secret which will lead you to fame and fortune, the key is learning to distinguish between good advice, and just plain old free advice. In this article we will explore tried and true secrets to stock market success which you can choose to apply to your trading strategy, or you may choose to ignore complete-when it comes down to it, the only opinion that matters is your own.
First, never allow yourself to lose large sums of money in the stock market. Buying stocks is easy-after all, anybody can do that.
The hard part is knowing when to sell, and very few people know how to do that. We've all made expensive mistakes-either missing the full upside by selling too soon, or taking a huge loss by holding a falling stock too long.
Most people don't know when to sell a falling stock, so they're frozen into inactivity, saying, "Should I just keep holding and hoping, or should I cut my losses now?" The truth is, there's no reliable crystal ball to tell anyone when a rising stock has peaked.
The problem that causes both these mistakes to happen is simple: ordinary investors are ruled by emotions. The only way you are ever going to join the highest echelon of the world's best investors is to strip all emotions out of your decisions.
While you'll never be able to sell at the peak each and every time you invest, or ensure that you never buy a stock that subsequently falls dramatically, there is a secret weapon that is proven to get you the lion's share of any move. When you buy a stock, you buy it with the intention to sell it for a profit sometime in the future.
In order to do so successfully, you should put as much thought into planning your exit strategy as you put into the research that motivates you to buy the investment in the first place. All great traders and investors consistently cut losses short and let their profits run, and it has been found that trailing stops are one of the easiest and most effective ways of doing that.
The next secret comes in when to buy and sell stock. Have you ever seen Coke or Microsoft selling at a single-digit P/E ratio?
You will not-and these are not isolated cases. The fact is, by hoping to buy super-cheap, you would have missed out on many of the greatest investment opportunities of our time.
To make the big bucks in the best investments you'll have to forget the idea to buy low and sell high. The more modern investment rule of today is to buy momentum, and sell higher.
We like to buy companies on the way up. It usually means the company is doing something right.
Let's say that you believe in the idea of a three- wheeled car, and the price of the stock in the company that manufacturers them is at thirty dollars, but is falling. When do you invest-at thirty dollars, twenty dollars, ten dollars, or five dollars?
You do not know how far this thing will fall. You want to buy when there is some inkling of a market confirmation of your idea.
There is no price that is the right price. Take ten dollars for example-you would be a buyer at ten dollars if your three-wheeled car had fallen to five dollars first, and then the stock started to take off because Ford was going to take it over.
But you are not a buyer at ten dollars if it's one stop on the way down-the last stop on that elevator could be the basement.
The bottom line is this: you do not want to buy dreams alone. You want to buy dreams that are turning the corner to reality.
As you can see, there are so many subtle techniques to buying and selling stock that can only come through the experience of time, and the wisdom which comes with failure as well as success. The key comes in doing the proper amount of research on your stocks, companies, investments, etc. to make sure that you can predict and control the ever-changing beast, which is the stock market.
