Becoming a successful stock investor doesn’t happen overnight. It takes years of learning and trials for someone to become successful in the stock market. I’ve compiled a list of five rules that some successful investors in the stock market follow.
Following them may not make you as successful as those investors, but it will definitely change your situation for the better.
Without further ado, let’s get to the list…
Rule # 1: Learn how to trade both short and long
I usually hear investors talking to each others and trying to justify why they aren’t interested in learning how to trade short.
Obviously the majority of the stock investors trade in the stock market by going long, it’s the primary method that we all learn. But if you don’t want to teach yourself how to trade by going short, you’re putting a limit on yourself that may hurt you at some point in time.
Why is short sale stock a must know method? As you’re trading penny stocks I’m pretty sure you’ve reached to the point where you come to realize that sometimes short selling is your best option.
You may not want to adopt this method as your primary one, but sometimes to make profit you ought to utilize it. Nonetheless, you have to know the right way to do so.
Rule # 2: Only invest the amount you can afford to lose
It’s one mistake that’s being made by so many new and experienced stock investors. When you’re trading stocks you should always be ready for the worst. You can’t put some funds that you were going to pay your bills into a stock.
Although you may get lucky and make a large profit from such a trade, it can also go against you. And once this trade goes against your expectation there are usually two things you can do. Either you sell and accept your loss, or you hold onto it and pray for a recovery.
Unfortunately, oftentimes when a penny stock goes down in value it usually stays in that trend for a day or two if not more. With that being said, you won’t know how much of your money would be loss by the time the support is hit.
Therefore, the best decision to make when you’re loosing is to accept the loss and move on. Invest some money you can’t afford to lose can be a disaster.
Rule # 3: Don’t think that you can time the stock market
Anil Chopra, group CEO and director, Bajaj Capital states “you should never try to time the market. In fact, nobody has ever done this successfully and consistently over multiple business or stock market cycles. Catching the tops and bottoms is a myth. It is so till today and will remain so in the future. In fact, in doing so, more people have lost far more money than people who have made money.”
That means you can never spot a stock at its lowest or highest. The best point of entry to look for is when the trend has been changed. If it hasn’t changed it’s almost impossible to pinpoint when it’s going to.
Rule # 4: You should buy stocks that are damaged, not companies that are damaged
It’s not difficult to distinguish a damaged stock from a damaged company. In fact, you’ll see a damaged company right away from how it used to function to its current form. A company doesn’t get damaged in one day; in other words, it takes months or years for a company to show its side effects from its damages.
As a result, most investors would know when a company is damaged. However, if you don’t look at the past you may not realize that. That’s why it becomes a must that you conduct your research very carefully before you invest your hard earned money.
Rule # 5: There’s always a bull market
Bear market refers to when most of the stocks are being traded in a declining trend. On the other hand, a bull market is the opposite. Stock investors usually try to stay away from the stock market when they hear it’s bearish.
One thing most of them don’t realize is that not all of them are in this bearish state. No matter what you’ve heard of throughout of your trading years, at least one bull market will always be found.
Most of us don’t like rules, some of us would be very glad to live where we don’t have to follow any rules.
But there’re some cases where rules are very important to follow. As a stock investor, if you want to reach your goal you’ll definitely have to follow some rules.
Although you may be able to get by without having to deal with any of those rules, but following them could make your life much easier.