So You Want To Become A Share Trader?

[strudy]

So You Want To Become A Share Trader?

Sounds impressive eh? You have visions of dollars floating through your head. Dreaming of fast cars, luxury holidays etc.

Easy money to be made just look at the newspapers there are lots of people making millions everywhere that’s if you believe all that you read in the newspapers and what you see on television.

Well it’s time for a reality check, for things are not as they seem. Sure there is money to be made especially in a bull market, (rising share prices.)It can be very easy to make money. The drawback is that the beginner is unprepared for the inevitable downturn in the share market.

Before they know it they have suffered a couple of reversals only to find that they have lost a goodly proportion of their capital and having burnt their fingers severely, leave the market very disillusioned never to return.

The market place is littered with the broken hopes and dreams of the would be share trader. And if again in the future they decide to try their luck again they are doomed to failure because their attitude and training hasn’t changed from their last foray into the marketplace arena.

So What Is The Answer?

Now taking the “Lady Luck” factor out, you are rewarded proportionately to the amount of effort you put into learning the foibles and idiosyncrasies of the share market, and learning that one of the biggest problems you will face in the market is “Yourself.”

So What Do I Have To Do To Become Successful?

Firstly there are a few things to look at before you start trading in the market.
You need to ask yourself a few questions and be very honest in your answers.

1. Why do I want to trade in the share market?

2. How much capital do I have to invest?

3. How much can I afford to lose if things don't go the way I’ve planned?

4. How much profit do I want to make? (Be realistic.)

5. What am I prepared to do to become successful?

6. Where can I get the information that I need to get started?

7. Which broker shall I use? How much will I pay for their services?

8. How much time can I spare to be a share trader.

We shall now look at the above questions in a little more detail.

Why do I want to trade in the share market?

The first thing that comes to mind is obviously to make money and not to lose it too quickly.
But really, only you can answer this question. But again be honest with yourself.

How much capital do I have to invest?

That depends mainly on you and your financial commitments. But to be practical you would need around the $2,000 mark at minimum to start with.

One reason is brokerage .You will be paying around $50. That’s $25 for buying your shares and $25 for selling them. So that is 2.5% profit you have to make to break even. Therefore if you made 10% profit which equals $ 200.00 less $50.00 for brokerage, this will leave you a profit of $150.00 or 7.5% clear profit.
(I haven’t allowed for capital gains tax in this.)

How much can I afford to lose if things do go the way I’ve planned?

Personally I would have a stop loss in place for around the 7.5% to 10% level. (For more information on stop losses see past post called “stop losses”)

But this is an individual thing as to what you are comfortable with. Also this depends on how large the amount is that you have invested in the first place.

How much profit do I want to make?

A million I hear someone say. Now that is a nice round figure but there are a few things to take into consideration first. One is to realistically pick a time frame in which you intend to achieve your monetary goal. The amount you have to invest plays an important part as well. Because the smaller the stake you start with the longer it will take you to make your financial goal. So be realistic in your goals and expectations.

Because of financial constraints I had a personal goal to begin with of only achieving $100.00 a week profit. But over time I have built the original $500.00 portfolio to around $12,000 in around three years. I have continually added my profits back in. And I have had a few losses and minor setbacks along the way.

What am I prepared to do to become successful?

The first and most important is to study, study, and more study in fact you never stop learning. Allocate time to do this on a regular basis.

I have experienced the largest learning curve in my entire life since I became serious about becoming a share trader. And the biggest problem I have faced is “The person in the mirror” Myself! For I found that the emotions of “Fear and Greed” were the first things that I had to deal with. And they still trip me up from time to time.

The person in the mirror can be your biggest enemy or friend. You will find that your emotions, attitudes will govern how you trade and react to market conditions. I am not going to go into any details here as you will find past articles in this website which amply covers all these areas.

As I have stated before the amount of profit that you make is directly in proportion to the effort you put in.

Where can I get the information that I need to get started?

Too easy! Well you have made a fantastic start by just reading this article plus there are over “900”just in this web site alone. All you have to do is take the time to go through the different categories/downloads and pick out the ones that help you the most. And they are all free!

If the information you are seeking is not there, give me an e-mail and I shall endeavor to find it for you, or failing that I will tell you where to go to get it.

Which broker shall I use? How much will I pay for their services?

This will depend on what sort of services you require. Usually the more “bells and whistles” you want the dearer the broker. The one I use at the moment is E-TRADE. I am quite happy with the services that they provide as I have a preference for doing my OWN research so if I make a mistake then I have only myself to blame.

8. How much time can I spare to share trade?

This depends on the commitment you are willing to make plus the goals you want to achieve. But the rewards definitely reflect the amount of effort that you put in to it.

But of most importance is that your life should not revolve around the stock market. You need a balance even when you have become a professional share trader.

Of course there are questions that I haven’t covered, but these are the basic ones that will help you to find your footing on the rocky road to financial freedom through share trading.

Happy Trading!

 

[strudy]

Along For the Ride, Just Like a Flea on a Dog’s Back.

In the share market I do not mind hitching a ride with strangers because I understand that I am not a partner in that business or company.

Thinking you are a “Partner/Owner” just because you own some shares in the company is one of the most “FATAL” beliefs in the market.

Accept who you are and the role you play and that “Like that flea on the dog” you are just along for the ride.

This is not a time based strategy; it can be for one day, one week or a month or even longer. It all depends on the length of the ride and the trend of the stock as long as it is heading upwards and that’s the way you want to go.

As soon as the trend finishes or changes direction (goes either downwards or sideways) then it is time to jump off.

You then wait till the trend restarts upwards or you can look for another ride elsewhere.The choice is yours.

The only thing YOU have control of when you buy a stock is your “Entry point and your Exit point.”

I hate to say it, but you have no control over anything else not even the time. Of course if you want to make a profit your timing has to be spot on but then again that is the exit point.

You alone are the only person that can turn a small loss into a bigger one.

A Bit of Homespun Philosophy

Everyone has the same access to information that we do or earlier. But it is the same information none the less. Except for insider information.

Share Price behaviour reflects around EMOTION. Today’s price is a continuation of yesterday’s crowd emotion.

Future share price behaviour is best analysed as a probability factor.

Risk is directly related to price and is manageable.

Most people avoid the mistakes they have made in the past. And a lot of people spend their lives playing it safe. Avoiding the lessons their past mistakes have shown them.

Excuses are really lies you tell yourself. Make an effort not an excuse.

It is not the information you have that is important. It is what you do with that information that counts.

The main reason for the difference in the final result is our individual response to Fear and Greed.

Ignore “Hot Tips” unless they are backed by your OWN independent analysis.

 

[strudy]

The “PRICE” of a stock at any given time is due to the buyer and seller of this particular stock reaching a mutual agreement with regard to its current value.

When the price goes up it is because the seller thinks it is worth more or there is a short supply of stock available.

The opposite happens when there is an excess of stock available, this effectively pushes the price downwards. So the current share price is an accurate gauge of the market value of the stock at this point in time.

PRICE is involved when you buy the stock, your potential exit price to limit losses [stop loss] and potential exit price to make your profits.

GREED will push the price up. FEAR will push the price down.

A low priced speculative stock is often priced as it is because it has not attracted the interest of a wide section of the market. Price is effected by as much by Inaction as well as by Action.

The closing price is a reflection that shows how traders are relating to that stock. It is a reading of whether there is “excitement” or “rejection of that stock.

When you are buying a “stock” you have four options open to you.

1. You can stay with your original price and wait for the share price to come down to you.

2. You can chase the price and collect the shares you have decided on.

3. Still chase the price but keep the same dollar value but get fewer shares.

4. Buy your stock at the asking price.

Remember our decision to buy does not happen if there is no one wants to sell at that price.
We are also powerless if someone is bidding a higher price for the stock than we are.

They will get the stock unless you put in a higher bid. (This is dependent on how much stock is available at the time.)

THE TWO MOST COMMON EMOTIONS ENCOUNTERED.

The most common is” FEAR and “GREED.”

And what effect do they have?

Here is a “Classic” example of what is happening on the stock market every day World wide.

Firstly Greed pushes the stock price upwards and Fear has the opposite effect by pushing the share price downwards.

Greedy traders start rushing in to get the stock at any price so they won’t miss out.
.
Then finding the share price suddenly reversing as “Smart traders are taking their profits” which then has the effect of causing the stock to commence sliding backwards as excess stock is now available.

This is the time when Fear sets in. The traders start to panic and start selling so as not to take too big a loss.

This puts more stock into the market, which only accentuates the price slide downwards even more quickly.

The smart traders who sold out at the “high” are now buying back the same stock at reduced prices.Ready for the next run upwards.

As I have said before. How often does this happen? Every day somewhere in the Market this is occurring.

How do I know? I have been caught myself when I began trading and no doubt I shall get caught again. But now I am more aware of these “EMOTIONS” and the part they play in daily trading.

 

[willsam]

I agree with strudy, & emotions in the market, but it is hard not to have cool emotion when buying shares such as CRS ( now delisted. ratio 15 to 1 shares), & BKP (now under administration), & not feel any emotion at all. I am new to this forum, but assure you share trading is a tough business & only tough, with an element of luck will survive.

 

[alwaysLearning]

Great article strudy, thanks

 

[strudy]

This is my latest article.Sorry it's a long one but it is well worth the read.

Because of its length I have posted it into two parts
Part one
Be a Winner or a Loser, it's Your Choice!

The stock market is impartial as to whether you are a success or a failure in your share trading. The only person who cares (Apart from your bank manager) should be you.
For it is only by the choices and decisions that you make in the future which will determine your success or demise in the share market.

We will be dealing with realities today and actual truths. No pulling punches or soft soap. Just harsh plain facts.

This article is about Choices or Decisions. Call them what you will, but they will determine your future trading habits, and the trading success you may or may not achieve.

For a start I wont guarantee that after reading this article you will become a "Roaring Success" in your share trading forays into the stock market.

But IF you make the RIGHT Choices and put into practice some of the Choices below, you will be more aware of the pitfalls and traps that await the unwary and untrained trader. And therefore swing the probability of success factor in your favour and thereby minimise the risks also.

Plus by learning by your mistakes you will increase your chances of success.

These Choices are in no particular order of importance. These I leave up to you to work out what suits you best for you are the one who will ultimately be making all of your trading decisions.

So the "Ball is in your court” It is now up to you.

1st Choice.

Do you want to be a Winner or a Loser? If the answer is a Winner read on. If not now then perhaps later on when the time is right. That’s if there is a next time.

So saying that let's take a look at some of the Choices available that will assist you on that rocky road to becoming more successful in your trading.

2nd.Choice.

The Winner always has a preset plan to work to. I won't go into details as there are other articles available in this site which covers this in greater depth. This part is essential, for without a plan you are doomed to failure.

The Loser doesn't bother or is uniformed or worse doesn't care.

3rd Choice.

The Winner has bought his stock ONLY after he had completed his research and not before. This research was his OWN for he relies on his OWN Judgment and not someone elses.

This has involved fundamental analysis as well as some technical analysis. Over time the Winner has learnt which methods suits him best and applies them accordingly.

He keeps a list of prospects (20 is a workable number.) which he updates on a regular basis. For he knows full well that on his list of potentials stocks rests his future profits.

The Loser listens to hot tips, gossip in chat rooms, Television, magazines and other media outlets. He relies on others for his research. Assuming of course they have done some. For he very rarely does any research himself.

And as for any analysis well that’s just too hard, and he doesn't need it anyway, and there's no point to keeping a list is there?

4th.Choice.

The Winner bought his stock at the best price possible, knowing full well that it was only luck if he happened to pick the very bottom and the lowest price just as the stock started to trend upwards.

If the share price rises above what he originally wanted to pay he will buy less stock, thus keeping to his budget.

Or else he will wait for a downturn in the share price or failing that he will return to his list of other prospects. But still keeping an eye on this stock in case of a future downturn or a change in circumstances.

The Loser will chase the share price for he must have that "stock at any price" and therefore quite often ends up paying more than he originally intended. Then only to see the share price dip suddenly as profit takers move in.

They can be left high and dry waiting for the stock to reach a higher price again. This can be months later particularly if the trader doesn't want to take a loss. This of course ties up his funds for the duration he hangs onto this stock.

5th.Choice.

The Winner knows that losses are guaranteed at times, and accepts this fact of life. But prepares himself for them in advance by using a "Stop Loss." These are also known as conditional orders.

The trader sees them as a form of insurance not only used to minimize losses but he also employs them to lock in his hard won profits as the share price rises.

He is fully aware of the other risks that abound when trading and takes steps accordingly. For he has learnt by bitter experience that if risks are not minimised that he can lose a goodly portion if not all of his trading capital.

The Loser again doesn't bother, or is uniformed or worse doesn't care. He sees it as an unnecessary expense. And as for risk he is unprepared for disaster.

He is in reality an accident waiting to happen. He will eventually lose his money and quite often is not even aware of as to what has caused this to happen.

 

[strudy]

Part Two
Be a Winner or a Loser, it's Your Choice!

6th.Choice.

The Winner has a preset profit in mind at the beginning of the trade and usually will sell when this level is reached.

If the share price is going up faster than he anticipated or planned for, he will quite often sell part of his stock holding and then a rising stop loss to lock in further profits as they eventuate. This he reviews on a regular daily basis.

The Loser has no idea as to what his profit is likely to be, and will hang on for the highest profit possible, only quite often to see that the very next morning, that the profit takers have moved in and that any prior profit that might have been made is now a lot less than if they had got out earlier.

Sometimes they miss out completely and experience a loss instead. This unfortunately is happening all to often.

7th. Choice.

The Winner very rarely will put in an order overnight. He will patiently wait until the initial scramble for shares has occurred and the "dust has settled” which is usually around half an hour after the market has opened.

Quite often the price is lower than the night before and he now has some idea of the mood of the market. He fully realizes that no one can predict which way the market will move during the day. But he is prepared for all eventualities.

The Loser of course could not wait and paid the opening price which sometimes can be higher than they bargained for, then only to see the share price recede during the oncoming days trading or they missed out altogether and will now chase the price. (Also See Choice 4.)

8th.Choice.

The Winner has around a total of Five to Ten stocks invested in an average portfolio, and never exceeds his budget.

He realizes the value of diversification and not having all your eggs in one basket. He knows that all of the sectors in the stock market are affected differently from time to time and that they are cyclic in behavior.

Just take property and the banking sectors for example and see how they have behaved of late.

The Loser invariably homes in on the current "Flavour of the Month” as this is the one stock that he is going to make a bundle on.

And then win or lose, and when that stock's shine wears off and is now not so popular, then it's on to the next one. Forever looking for that get rich quick stock. The next potential gold mine..

Don't get me wrong there are successful traders out there who have made money chasing stocks, but they are in the minority and very rarely are they consistently profitable.

9th.Choice.

The Winner realises what role "The Emotions" particularly "Fear and Greed" play in the daily trading stock market scene, and utilises them to his trading advantage.

He knows that when panic reigns and there is a downturn in share prices that this is the opportune time to go bargain hunting.

He keeps an eye open for good quality stocks that have had a plunge in their share price knowing full well that they will recover in the not too distant future.

He always has extra funds available for events such as this.

The Loser’s trading behaviour is governed by his emotions and the actions and emotions of others in the stock market.

He buys when they buy and sells when they sell. When there is a dip in the market for whatever reason the market panics and sells, he will copy them. Reason and logic play no part in his trading behaviour.

10th.Choice.

The Winner believes in the value of paper trading. For this is where he can fine tune his trading skills and tries out new methods and ideas before putting his hard earned cash at risk.
He also regularly reads and is willing to learn new techniques, for he is only too aware that he does not know it all.

The Loser can not see point of this exercise and sees it as waste of good time and effort.

11th.Choice.

The Winner knows when HE has made a mistake and teaches himself so as not to make the same mistake again and adjusts his trading skills accordingly. For he knows that he alone is to blame and that the fault is his and his alone.

The Loser blames the market, the stock, the information he received from his advisor or the finance magazine from where he got the hot tip.

The last person he looks at is himself. So if no changes are made in his trading habits, then it is only a matter of time till that mistake or error in judgment occurs again and again to the detriment of his trading capital.

In a nutshell The Winner has planned to Win whilst the Loser by not planning is really planning to fail whether they are aware of it or not.

Is success guaranteed? The honest answer must be NO that it is not. Neither can you predict how a stock will behave in the stock market from one day to another.

Though there are people around who believe they can and will charge you handsomely for the privilege of letting you know also.

The purpose of The Choices above is help you to Minimise Risk and therefore to assist you to swing The Probabilities of Success in your favour.
For it is by using The Laws of Probabilities and Averages that you will maximise your chances of becoming more profitable in your future share trading.

So it is now up to you to make Your Choice as to where you go from here. It is in your hands and yours alone. No one else can do it for you.

I wish you every success in your future profitable trading

 

[strudy]

Two Little Four Letter Words.

The two words that every share trader has to come to grips with every time that they trade are "Risk and Fear." Combine the two of them and you have concocted a poisonous mixture.

As soon as you start with your first trade transaction you are leaving your self wide open to "Risk." That is the risk of losing part or nearly all of your original capital.

The first loss you encounter which you have no control over is brokerage. The amount depends which stockbroker you have chosen to deal with. So the share price has to rise a little bit just for you to break even. If the share price decreases then the loss compounded.

One of the first things that will help you to overcome "Fear" and to survive in the share market is by using a trading plan and sticking to it. Without one you are doomed to eventually fail. For all you are doing is a hit and miss affair.

By using a trading plan the odds of your survival and trading success arc dramatically increased tenfold if not more. By having a trading plan and adhering to it does not a guarantee success just puts the odds more in your favor.

Now the action we take to protect our trading capital is a "Stop Loss." This is also known as a conditional order.

Now before you set the stop loss in place you need to have planned in advance how much of your precious capital you are prepared to lose.

Once you have agreed upon the stop loss and have put it into place you can then sit back happily knowing that you have done the best you can possibly do to save your trading capital.

In a successful trade the share price is rising and soon you are experiencing a paper profit. It is called a paper profit because as yet we haven't as yet physically taken a profit. This only occurs when we sell the stock and not before.

Now we experience the risk and fear of losing that hard won profit. That is assuming that you have picked a preset level of profit according to your trading plan.

To safely lock in that profit we use a variant of the stop loss we first employed when we opened the trade.

This is called a "Trailing Stop Loss." The purpose of this is to follow the share price upwards and it effectively locks in your profit that you have made so far.

These stop losses are based on either a percentage or a dollar figure.

Most important of all is that they must be reviewed every day in case they need an adjustment. And when required do not procrastinate but do them straight away for it could cost you dearly.

By doing all of the above you have alleviated a lot of the risk and reduced your fear levels considerably which makes for sleeping better at night worry free.

I highly recommend it.

 

[strudy]

1. OPPORTUNITIES. There are dozens of these every day, unfortunately you can’t buy them all, so only pick the top 10 and then narrow them down to 2 to 3.

This is done by using your buying criteria which is part of your trading plan which you already have written down. (Hopefully you have one?)

2. BUYING and SELLING. I have a pre planned strategy which I have developed by trial and error; this was achieved by learning by my trading mistakes and the mistakes of others.

3. PATIENCE.This is definitely a virtue worth developing. Sometimes the market is going up in the right direction, but is not going as fast upwards as you would like.

Be patient and use a “stop loss” to lock in those profits. However small they may be.

Also don’t always be in a hurry to “buy that next share” just because you have that money burning a hole in your pocket.

Do your homework and then you have chosen the right share for the right reasons and not just because it looked good.

4. STRESS.If it is hurting! Don’t do it, cut your losses or be content with a small profit and get out. A while ago I got out of MPO as I did not feel 100% comfortable and bought AUZ and made a profit of 12.5% for one days trading.

5. THINK and PLAN AHEAD. After I have bought a stock and once it has been cleared. I immediately put a sell order in at the price/ percentage that I had previously worked out using my trading plan.

This trading plan is not set in concrete as it is revised usually on a monthly basis. And always be prepared to improve on it where necessary.

Depending on the volume and the stock’s volatility I occasionally vary my profit margin upwards. If I do this, I always keep a watchful eye on its movement and put in a stop loss to lock in those precious profits.

6. HOPE.This has no place in a trader’s plan, as Hope leads to procrastination (putting thing off).And this will lead to losses which you can ill afford.

7. WORRYING. The same thing applies as above; if you are worrying about a stock then it is time to sell it.It's nice to sleep at night.

8. FUN. You should enjoy trading for if isn’t fun then it’s time to put your money into managed funds and quit trading.

9. RESPONSIBILITY. Take responsibility for your trading mistakes and learn from them. No one else made you buy that stock.

10. CONFIDENCE.Have faith in your abilities. At all times be a “Student” for you never know it all. And the minute you become complacent, something nasty comes along to bring you back to earth with a thump.

I hope these tips will give you some assistance in finding you profitable shares and improves your trading skills.

 

[strudy]

I always employ a stop loss whenever I buy a stock. I see it is a form of insurance.

But it has a twofold purpose as it stops you having a too great a loss and you can use it to lock in those profits by using a trailing stop loss as the share price rises.

The beauty of a stop loss is it gives you peace of mind and stops you worrying about what the stock is doing. Particularly if you can’t follow the share price action because you have to be somewhere else and not sitting at the computer.

My advice to everyone is “Never leave home without one!” It is a small price to pay and they are worth their weight in gold literally.

Other things to consider when buying a stock are :-

1. There is No guarantee that you will get the stock at the price you want to pay for it

2. If you have an ” at market” order you could end up paying more than you wanted to as the stock opened up higher than the last price you saw on the Friday before.

3.Worse case scenario is you bought at the highest price and by the time you get to look at the share price it has come off the boil, profit takers have been busy , the price went backwards leaving you high and dry and immediately out of pocket.

So you now have two options available to you, turn that “paper loss” into a real one OR wait till the share price regains its former high price.

Before I used a “stop loss” I held on to two stocks which had been high and went backwards. I held onto these stocks hoping they would rise back up again in the next day or so.

They both continued downwards till my “paper loss” was nearly 50%, I kept telling myself they will go back up again. They did but around 6 months later and then I got out at a small loss on one and a larger loss on the other.

Looking back in hindsight, I should have taken those small losses immediately for I had around $1,000 tied up, which could have been making me a profit elsewhere.

Or of course had stop losses in place (I had never heard of them until it was too late).

So it was one of my most costly mistakes and taught me a hard lesson which I have never forgotten.

In the share market world you are guaranteed to make mistakes in timing and buying the wrong stock .The stop loss minimizes those mistakes.

 

[strudy]

Golden Rules Of Trading.

1. Stick to the rules.

Believe it or not this is the hardest rule. The trader will keep breaking this one time and time again.

As I have mentioned recently, every time that I have strayed away from my trading plan I have always lost money.

2. Diversify.

Don’t have all your eggs in one basket. Buy from a couple of areas, not just the one sector i.e. mining.

3. Buy shares that suit your trading style.

If you are buying shares for long term, obviously this won’t suit you if you are a short-term trader. And vice versa, shares for short term won’t suit if you are a medium to long term trader.

4. Know your risk tolerance.

A speculative share has a different risk profile to an out-of-favor blue chip. Therefore allocate your capital according to the risk profile of the trade and your own personal risk tolerance.
This is a personal decision that only you can make.

5. Don’t rush in.

All investor’s particularly new ones should take their time and learn about the market before
they start trading.

A good way is to “paper trade” first so as so as to learn the basics first.

The market will still be there waiting for you for when you are ready to trade.

6. Don’t get greedy.

Do not expect unrealistic returns.10- 15 % is a good figure to aim for.

Don’t think this is easy, and get over confident and think that you will be a millionaire overnight. It is all too easy to lose money on the stock market.

7. Only invest what you can afford to lose.

If the share is causing you lose sleep or it is worrying you. The reasons could be that you ether own too many of them or it is the wrong type of investment that suits you.

Sell them! Peace of mind is very important. You don’t need the unnecessary stress.

8. Never, ever chase shares.

Never go beyond the limits that you have set.
If you exercise a little patience you will usually be able to buy shares below your limit. The cents saved on your buying and selling will add up by the end of the year.

9. Keep accurate up to date records.

This is most important, particularly at taxation time. For the penalties for not declaring your profits and not paying your capital gains tax’s are formidable.

As I have said before the hardest rule is to stick by them. But believe me it is worth the effort.
I hope these “Golden Rules” make you some “gold” in the near future.

 

[strudy]

Golden Rules Of Trading.

1. Stick to the rules.

Believe it or not this is the hardest rule. The trader will keep breaking this one time and time again.

As I have mentioned recently, every time that I have strayed away from my trading plan I have always lost money.

2. Diversify.

Don’t have all your eggs in one basket. Buy from a couple of areas, not just the one sector i.e. mining.

3. Buy shares that suit your trading style.

If you are buying shares for long term, obviously this won’t suit you if you are a short-term trader. And vice versa, shares for short term won’t suit if you are a medium to long term trader.

4. Know your risk tolerance.

A speculative share has a different risk profile to an out-of-favor blue chip. Therefore allocate your capital according to the risk profile of the trade and your own personal risk tolerance.
This is a personal decision that only you can make.

5. Don’t rush in.

All investor’s particularly new ones should take their time and learn about the market before
they start trading.

A good way is to “paper trade” first so as so as to learn the basics first.

The market will still be there waiting for you for when you are ready to trade.

6. Don’t get greedy.

Do not expect unrealistic returns.10- 15 % is a good figure to aim for.

Don’t think this is easy, and get over confident and think that you will be a millionaire overnight. It is all too easy to lose money on the stock market.

7. Only invest what you can afford to lose.

If the share is causing you lose sleep or it is worrying you. The reasons could be that you ether own too many of them or it is the wrong type of investment that suits you.

Sell them! Peace of mind is very important. You don’t need the unnecessary stress.

8. Never, ever chase shares.

Never go beyond the limits that you have set.
If you exercise a little patience you will usually be able to buy shares below your limit. The cents saved on your buying and selling will add up by the end of the year.

9. Keep accurate up to date records.

This is most important, particularly at taxation time. For the penalties for not declaring your profits and not paying your capital gains tax’s are formidable.

As I have said before the hardest rule is to stick by them. But believe me it is worth the effort.
I hope these “Golden Rules” make you some “gold” in the near future.

 

[strudy]

There are hundred of articles and books that will tell you how to trade successfully.How to look out for certain charting signals which will tell you when it is the right time to buy.

Of course you do your own research. Of course you buy when the stock is trending upwards.Etc .You stick to your preset plan of when to sell at the best profit possible.You do everything that they tell you to do and more besides.

Then you can have purchased the best software program available, which has cost you thousands of dollars.

Then you also subscribe to to the numerous newsletters and listen to expert advisors who will tell you what to buy and when to buy .All for a substantial fee of course.

Even with all this going for you is there any guarantee that you will be a success? I am afraid the answer is a resounding NO!

By doing everything above you have given yourself a better chance of being a successful share trader than the amateur. But without that “Secret Ingredient”you are doomed to eventual failure, for the odds are stacked against you.

Have you figured out yet what it is? Without this knowledge you are almost doomed to failure.

What I am about to tell you will make a big difference towards your trading success.For without it you hard earned starting up capital will be lost very quickly.

Ok! you have twisted my arm.

The Secret is nothing more simpler than Risk Control.

The successful trader accepts risk as an inescapable fact of life while he is trading in the market.It is his devotion to risk management that will determine his trading success.

.I shall explain in more depth how important managing risk is.For without it your days in the trading market are numbered.

The very first thing you must look at is Your Own Attitude To Risk. It is essential to know exactly how you react to risk and what sort of trader you are. I am afraid I cannot help you here.For it is a decision that you alone and you alone can make.Now for a closer look at risk.

It is of vital importance that each and every trade has to be assessed individually for the risks vary with each separate stock.

We shall assume that you have done your basic research before you picked this particular stock to invest/risk your capital in.

The next thing you have to look at is the stock itself. Take a look at todays' chart and you will find that the stock can only go in one of three directions.i.e. that is upwards,downwards or sideways. If it is it is going steadily upwards the risk of it going downwards are already reduced in your favour.

Understanding charting activity plays an important part in risk management because it reveals possibilities and gives you more choices.

I also employ a probability factor scale, you can adjust the percentages to suit your own risk tolerance.It is basically this:-

1. If the stock is currently going upwards it has 70% chance of continuing upwards, a 20%chance of going sideways and a10% chance of going downwards.

2..If the stock is trending sideways it has 50% chance of going up or down.An even money bet in other words

3. If the stock is trending downwards then it has a 70% chance of continuing downwards. 20% chance of going sideways and a 10% chance of going upwards.

Of course there are no guarantees but it effectively reduces some, but not all of the risk factor in your favour.

You have secondly have to look at the “Time Factors” involved .For Time is the most difficult risk variable in your trading plan.

1. How long will will the trade take to complete? Is it a short trade measuring days or is it of a longer duration?

For the longer the trade is open the more chance the market has of turning against you.For you have no idea which future events may influence your stocks share price.

For it is the activity in the market itself which determines the outcome of your stock,that is whether the share price goes up or down.

2. Two constant companions in the stock market are Fear and Greed. Let these two emotions govern your trading and your risk factor has just been multiplied astronomically.

So be aware of how they can effect your trading. either by paralysing you or by keeping you in that trade little bit longer than you should have been.
Letting your emotions rule your trading is a sure fire way to financial ruin.

3. Employ a stop loss to minimise your losses and use a trailing stop loss to lock in any profit you may have already made.

4. Use the 2% rule.That is limit the risk on ant single trrade yo no more than 2%of total trading or portfolio capital i.e $100,000 capital means that we lose no more than $2,000.

The correct application of the 2% rule may mean the loss in a single individual trade may grow to to 10% or 30%. However it will not exceed the dollar amount of $2,000

5. Diversify! This means basically spreading your investments, this spreads your risk.Do not trade just in resource or mining stocks.But have some exposure to other areas of investment.

As you may have noticed some sectors in the market have already been hit harder than others.

Learn by your past experiences or better still the experience of others .Remember each trade is just one of a series of probabilities and your success or the lack of it is determined by how you use that “Secret Ingredient” Risk Management.
The higher the rewards, the higher the risk Only if you do nothing to manage risk.

 

[barry593]

Experience and financial pain ARE the biggest teachers.

 

[strudy]

I bet you are wondering what criteria I use to pick my potential money making shares? Ok I will list them for you very briefly.

1. Adhere to your written down plan for buying and selling shares. I.e. The amount you are going to spend.

Have a stop loss in place (This is the amount you can afford to lose if things go the wrong way. 2% of the total value of your portfolio is a good guideline)

The % profit you want to make after allowing for brokerage etc.

The time frame you would like. (Not always possible) for the total transaction. Is it short, medium or long term?

The number of shares you want. (This depends also on your capital constraints)

Diversify don’t invest just in one area. Spread your risk over different types of companies. So if resources go downwards and you have Banks and Retail in your portfolio the chances of all thee going downwards are very slim.

Unless of course there is a general market crash then every thing goes down. Thank God they are not too common.

2 When I pick a stock one criteria I like is the stock to have the last high in the share price has been higher that the one the day before. I do this for a minimum of three days to five days consecutively. Plus the same for the troughs, I like each trough to be higher than the one the previous day.

3 Plenty of liquidity meaning a good volume of shares has exchanged hands recently.

4 Buyers outnumber sellers. If the other way round, the share price will drop downwards for sure.

4 Recent news or rumours of news .i.e. Takeovers, profits etc. Only good news of course.

5 Directors buying shares {not selling} in the last 2 to 3 weeks.

6 The “Trend Lines” show a definite trend upwards. If in doubt don’t trade.

7 A visual look {the old “eye ball test”} at the most recent chart, preferably over the last month’s performance.

Again if in any doubt drop the share till next time; just add it to watch list.

I have around 30 to 40 companies currently on my watch list. I whittle them down to around 3 -4 using those basic criteria above.

It is not a hard a fast criteria, make up some of your own preferences. Mine is just to give you a very basic idea to help you get started.

When it all boils down to it, there are no guarantees we are just working on the “Probability” of the share price going upwards.

NB If it is only 50- 50 probability don’t bother this is a share going sideways and you might as well toss a coin because you are now gambling.

If a share is going downwards I use the probability of 70% of it continuing that way, 20 % chance of going sideways, 10% going upwards.

The next is probability I use for an “Upwards” moving share price is 70% to continue upwards and 30% probability of either going sideways or downwards.

Remember these are only guidelines; if things don’t go to plan that is when you implement a “stop loss” (see past article if you want to know more on this.)

This article turned out longer than I expected it to, but if it helps you to make more successful trades then it is all worthwhile. Just remember me when you make your first million.

 

[strudy]

RESEARCH IS THE NAME OF THE GAME.

I do most of my research after the day's trading has finished. Firstly I look for stocks that have performed well today and add them to my prospect list. This number varies from time to time but the average number can be as high as 50 or so.

The reason for so many prospects is because only a small percentage will eventually match my entry criteria. So because of this I am entering new names continually on a daily basis.

There is no restriction to which sector they belong to either. They could be the banking or the mining sector, I try not to have favourites, but I must admit I find this hard to do at times.

I also keep an eye out for positive company announcements and also watch to see who is buying who in the substantial stock movements. Sometimes you can pick up on a takeover about to happen before the general market latches on to what is happening.

I have quite often just jumped on this stock for the ride, made my preset profit percentage and jumped off again. Not forgetting to put a stop loss in place in case the stock retreats as they quite often prone to do.

Another area that I like to keep an eye open for is when Directors are buying their own stock. This is a good indicator that they feel that the stock will be going upwards. I have never heard of a director buying their own stock to make a loss.

Like us they are out there to make a profit. They are a lot closer to the action than we are, sometimes they have knowledge that is weeks ahead of any news or company announcements that are likely to be made. Who else knows better how a company is performing?

I then check out my list of future prospects against my entry criteria. This is a step by step plan that I have devised over time. It works for me, but it is best that you have one that you are comfortable with. Another reason is that my criteria are quite strict and would possibly not suit the average trader.

Basically if any stock does not match up to this criteria then it is put onto the backburner for review later on. (In other words I am keeping a second list of potential stocks for later on. So you always have a list of prospects handy.)

With practice it is surprisingly how quickly you can look at a chart and see if the stock is a candidate or not. This way you can whittle the list down to 2 or 3stocks.How many stocks you invest in course depends on the amount of capital you have currently available for trading. So sometimes you may be restricted to just the one stock.

Quite often my funds are tied up and are not readily available; this is the case at the moment as I have been buying quality stocks at bargain basement prices. Even with these blue chip stocks, once my profit percentage is reached I sell them.

I do have a portfolio of select stocks that are paying healthy dividends. These are for the long term and I do not get concerned over the price fluctuations that are happening lately in the stock market.

When you do your research will ultimately depend on your work commitments or your other time constraints. It is really up to you as there are no hard and fast rules as to when you do your research.

The trick is to do it regularly until it becomes a habit, like riding a bicycle, the more practice you get the more proficient you become.

 

[Raider1]

Hi Strudy,
Very good post.

Cheers.......Raider1

 

[strudy]

PART ONE.

The stock market is impartial as to whether you are a success or a failure in your share trading. The only person who cares (Apart from your bank manager) should be you.

For it is only by the choices and decisions that you make in the future which will determine your success or demise in the share market.

We will be dealing with realities today and actual truths. No pulling punches or soft soap. Just harsh plain facts.

This article is about Choices or Decisions. Call them what you will, but they will determine your future trading habits, and the trading success you may or may not achieve.

For a start I wont guarantee that after reading this article you will become a "Roaring Success" in your share trading forays into the stock market.

But IF you make the RIGHT Choices and put into practice some of the Choices below, you will be more aware of the pitfalls and traps that await the unwary and untrained trader.

And therefore swing the probability of success factor in your favour and thereby minimise the risks also. Plus by learning by your mistakes you will increase your chances of success.

These Choices are in no particular order of importance. These I leave up to you to work out what suits you best for you are the one who will ultimately be making all of your trading decisions.

So the "Ball is in your court” It is now up to you.

1st Choice.

Do you want to be a Winner or a Loser? If the answer is a Winner read on. If not now then perhaps later on when the time is right. That’s if there is a next time.
So saying that let's take a look at some of the Choices available that will assist you on that rocky road to becoming more successful in your trading.

2nd.Choice.

The Winner always has a preset plan to work to. I won't go into details as there are other articles available in this site which covers this in greater depth. This part is essential, for without a plan you are doomed to failure.

The Loser doesn't bother or is uniformed or worse doesn't care.

3rd Choice.

The Winner has bought his stock ONLY after he had completed his research and not before. This research was his OWN for he relies on his OWN Judgment and not someone elses.

This has involved fundamental analysis as well as some technical analysis. Over time the Winner has learnt which methods suits him best and applies them accordingly.

He keeps a list of prospects (20 is a workable number.) which he updates on a regular basis. For he knows full well that on his list of potentials stocks rests his future profits.

The Loser listens to hot tips, gossip in chat rooms, Television, magazines and other media outlets. He relies on others for his research. Assuming of course they have done some. For he very rarely does any research himself. And as for any analysis well that’s just too hard, and he doesn't need it anyway, and there's no point to keeping a list is there?

4th.Choice.

The Winner bought his stock at the best price possible, knowing full well that it was only luck if he happened to pick the very bottom and the lowest price just as the stock started to trend upwards.

If the share price rises above what he originally wanted to pay he will buy less stock, thus keeping to his budget. Or else he will wait for a downturn in the share price or failing that he will return to his list of other prospects. But still keeping an eye on this stock in case of a future downturn or a change in circumstances.

The Loser will chase the share price for he must have that "stock at any price" and therefore quite often ends up paying more than he originally intended.

Then only to see the share price dip suddenly as profit takers move in. They can be left high and dry waiting for the stock to reach a higher price again.

This can be months later particularly if the trader doesn't want to take a loss. This of course ties up his funds for the duration he hangs onto this stock.

5th.Choice.

The Winner knows that losses are guaranteed at times, and accepts this fact of life. But prepares himself for them in advance by using a "Stop Loss."

These are also known as conditional orders. The trader sees them as a form of insurance not only used to minimize losses but he also employs them to lock in his hard won profits as the share price rises.

He is fully aware of the other risks that abound when trading and takes steps accordingly. For he has learnt by bitter experience that if risks are not minimised that he can lose a goodly portion if not all of his trading capital.

The Loser again doesn't bother, or is uniformed or worse doesn't care. He sees it as an unnecessary expense. And as for risk he is unprepared for disaster.

He is in reality an accident waiting to happen. He will eventually lose his money and quite often is not even aware of as to what has caused this to happen.

 

[strudy]

PART TWO.

6th.Choice.

The Winner has a preset profit in mind at the beginning of the trade and usually will sell when this level is reached.

If the share price is going up faster than he anticipated or planned for, he will quite often sell part of his stock holding and then a rising stop loss to lock in further profits as they eventuate. This he reviews on a regular daily basis.

The Loser has no idea as to what his profit is likely to be, and will hang on for the highest profit possible, only quite often to see that the very next morning, that the profit takers have moved in and that any prior profit that might have been made is now a lot less than if they had got out earlier.

Sometimes they miss out completely and experience a loss instead. This unfortunately is happening all to often.

7th. Choice.

The Winner very rarely will put in an order overnight. He will patiently wait until the initial scramble for shares has occurred and the "dust has settled” which is usually around half an hour after the market has opened.

Quite often the price is lower than the night before and he now has some idea of the mood of the market. He fully realizes that no one can predict which way the market will move during the day. But he is prepared for all eventualities.

The Loser of course could not wait and paid the opening price which sometimes can be higher than they bargained for, then only to see the share price recede during the oncoming days trading or they missed out altogether and will now chase the price. (Also See Choice 4.)

8th.Choice.

The Winner has around a total of Five to Ten stocks invested in an average portfolio, and never exceeds his budget. He realizes the value of diversification and not having all your eggs in one basket.

He knows that all of the sectors in the stock market are affected differently from time to time and that they are cyclic in behavior.
Just take property and the banking sectors for example and see how they have behaved of late.

The Loser invariably homes in on the current "Flavour of the Month” as this is the one stock that he is going to make a bundle on. And then win or lose, and when that stock's shine wears off and is now not so popular, then it's on to the next one. Forever looking for that get rich quick stock. The next potential gold mine..

Don't get me wrong there are successful traders out there who have made money chasing stocks, but they are in the minority and very rarely are they consistently profitable.

9th.Choice.

The Winner realises what role "The Emotions" particularly "Fear and Greed" play in the daily trading stock market scene, and utilises them to his trading advantage.

He knows that when panic reigns and there is a downturn in share prices that this is the opportune time to go bargain hunting.

He keeps an eye open for good quality stocks that have had a plunge in their share price knowing full well that they will recover in the not too distant future.

He always has extra funds available for events such as this.

The Loser’s trading behaviour is governed by his emotions and the actions and emotions of others in the stock market.

He buys when they buy and sells when they sell. When there is a dip in the market for whatever reason the market panics and sells, he will copy them. Reason and logic play no part in his trading behaviour.

10th.Choice.

The Winner believes in the value of paper trading. For this is where he can fine tune his trading skills and tries out new methods and ideas before putting his hard earned cash at risk.

He also regularly reads and is willing to learn new techniques, for he is only too aware that he does not know it all.

The Loser can not see point of this exercise and sees it as waste of good time and effort.

11th.Choice.

The Winner knows when HE has made a mistake and teaches himself so as not to make the same mistake again and adjusts his trading skills accordingly. For he knows that he alone is to blame and that the fault is his and his alone.

The Loser blames the market, the stock, the information he received from his advisor or the finance magazine from where he got the hot tip.

The last person he looks at is himself. So if no changes are made in his trading habits, then it is only a matter of time till that mistake or error in judgment occurs again and again to the detriment of his trading capital.

In a nutshell The Winner has planned to Win whilst the Loser by not planning is really planning to fail whether they are aware of it or not.

Is success guaranteed? The honest answer must be NO that it is not. Neither can you predict how a stock will behave in the stock market from one day to another.

Though there are people around who believe they can and will charge you handsomely for the privilege of letting you know also.

The purpose of The Choices above is help you to Minimise Risk and therefore to assist you to swing The Probabilities of Success in your favour.

For it is by using The Laws of Probabilities and Averages that you will maximise your chances of becoming more profitable in your future share trading.

So it is now up to you to make Your Choice as to where you go from here. It is in your hands and yours alone. No one else can do it for you.

I wish you every success in your future profitable trading

 

[strudy]

A good example of long term astute trading is Warren Buffet who is now 78 years young. He is currently worth an estimated cool $52 billion give or take a million.

And he has achieved that by essentially looking for quality, well-managed companies that are undervalued by the market. And he is prepared to wait for the right moment as we have seen recently.

Probably one of his most ignored mantras is: "Don't get rich quick."Hence the name of this article.

What lessons can we learn from this Master Trader?

A classic move which resulted in his latest spending spree which was only last September when during the current credit crisis, Buffet purchased options to invest US5 billion in the bank holding company Goldman Sachs.

Buffet has been quoted as saying, "We have done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check."

Only last week Warren Buffet has invested a further $3bn in General Electric plus He announced only yesterday that Berkshire Hathaway had bought a stake in Hong Kong listed BYB Company, its shares have already jumped 42%.

Obviously Buffet had researched each Company minutely, firstly examining their value, then the risk factors involved and no doubt checking their future profit potential as well.

Buffet plainly has set criteria in place before he invests into anything. Some of this criteria is important and worth remembering, writing down and putting it into practice.

Buffet says it best: "The first rule of investing is don't lose money; the second rule is don't forget Rule No. 1."

Buffet understood this math foible: If you start with a dollar and lose 50 percent of your money, you'll be left with 50 cents. But then it takes a 100 percent return just to get back to your original dollar. So it's best not to lose your money in the first place.

Some of the other things that He is well known to check out are as follows:-

Buffet checks out the ROE (Returns on Equity) of the possible future investment. ROE is calculated by taking a company's net income and dividing it by shareholders' equity. By this He knows that it measures profits as a percentage of what the investors actually own, and it also reveals how efficiently a company's profits are growing.

He has been known to look for companies with around a return on equity of at least 15 percent on average but this is open to debate as there are no hard and fast rules on this one.

He also looks at the future activities of the Company and tries to calculate the future value of a company's expected future cash flows. It's his way of assessing a company's intrinsic value. Then Buffet looks for companies selling at a deep discount to that value.

If you just take a good look in today’s market you will see good Blue Chip stocks going for a premium discount.

He is also looking for companies with long-term competitive advantages that make this future forecasting safer and less risky.

Buffet therefore obviously is an ardent advocate of “Buy in Gloom” and then hangs onto them for the long term.

If you had invested only $1,000 that’s $7,760 in today’s dollars with Warren Buffet back in 1956 and never cashed them in. They would be worth a tidy $30.6 million at the end of 2007.That is what you call long term investing.

Buffet is very patient prepared to wait till the right investment comes along. He is in no hurry; this is plainly obvious from the size of his portfolio. Judge this by the size of average manager of the value stock fund who spreads his or her investments among on average 146 different stocks.

He also advocates keeping Cash on hand just in case it is needed, for you never know when the next bargain investment is going to come along.

He understands something that a lot of people don't appreciate. Having large amounts of cash doesn't have to hurt your performance. Cash can be a strategic asset." Cash currently represents more than 18 percent of Berkshire Hathaway's investment allocation.

It goes without saying that Buffet is a great believer in Diversification.

So in a nutshell is it definitely worth following in the footsteps of Warren Buffet? Even following just some of his rules could increase your chances of share trading success.