Not many humans are naturals at making money at investing in the stock market. Some people have a stock market trading system built into their character, but they are extraordinary. However, most of us mortals, don't have this gift. Most of us succeed and make some money here and there and then lose a huge amount of money on one or two trades. Investing is counter-intuitive. You cannot win at trading the stock market, based on your emotions. That is how most folks trade. The professional traders know that you are trading emotionally, and they take advantage of that information. Believe me, they aren't trading emotionally. So what is the average man, with retirement staring him in the face, supposed to do? See previous article that discusses principles #1 & #2: Safety & Diversity, and,Ease of trading. We discuss Principles #3, #4 and #5 in this article. actually Principle #3: Timing the market I know. You have read many pundits that maintain that you cannot time the stock market. If you follow a stock market trading and timing system, you can time your purchases to your advantage. You need something clear-cut like: The market is bullish. Or, the market is likely to go down. Or, who knows? Get out of the market until it trends, again. You have to be in tune with the market. Never short a bulish market. Never go long a market that is falling. These principles look so simple, who would ever disregard these principles? Many people do. I know I have. The secret is getting in on a trend. You don't care whether it is an up-trend or a down-trend You just need to get in the the stock market when it is trending. Will you get into the trend at the very kickoff of the trend? In all likelihood not. But you will get in early enough to get a good hunk of it. Will you get out before the trend changing direction? Probably not. But, you won't be holding, and hoping, as most or all of your profits dissolve into some professional trader's pocket. When the market is not trending, you need to get out. Sell your holdings and watch - this is very hard for some traders, by the way. Many people are so eager to make money, that they believe that they have to be in the market most or all of the time. They over-trade, and get a little buzz cut here and a little haircut there, as the market moves back and forth. In a short time, if they do this long enough, they end up bald. Can you depend on a good stock market timing system getting it right, almost all of the time? I have never seen one. But there are several capable stock market trading systems available that make more money than the average trader can make. If you are able to get the timing services trade dates, you will consider at them and think, "Well, I could have done better than that." Actually, you probably couldn't - or you wouldn't be reading this article. You might inspect the trades and think, why didn't they get in there? See the market was trending up. They could have made a lot more money if they had gotten in earlier. If you think like that, you are afflicted by 20-20 disease. Or, perhaps, you should be loaning out your time machine, or crystal ball instead of trading in the stock market. Principle #4: Many strategies are worse than useless. Timing services are not precise. Let's admit that fact. In fact, pundits have stipulated that "buy and hold" is the way to invest. Well, let's look at the last ten years. You would have lost about 27% if you bought and held. If you had purchased almost any mutual fund, you probably would have lost almost as much. Check out several of our other articles that consider these facts. Perhaps you should simply "dollar-cost-average". That means you buy a fixed dollar amount of stock every month, or every year whether the market is going up or down. This method has been a failure over the last ten years, too. How about somehow finding a stock that is going up and keep buying more shares of it as it advances. Trust me, that doesn't work either. Does GM bring memories back? Does Novell or Cisco do anything for you? Ok then. What about following the maket experts? They are TV every day. There are countless investing blogs. There are services, I won't mention any names, that advertise crumby, thinkly traded, stocks to buy. If they have horde of subscribers buying, the stock, that stock will go up. Then, of course, they sell before you do. You are left holding a stock that only the market maker will buy from you. Here's the secret. Buy a stock that has taken a big fall and is at the bottom and ride it back up. If you have been investing for a while, you will have learned this education, too The point at issue is this. Where's the bottom. Stocks routinely go down further than the charts would indicate. They can break support and go down in great, gut wrenching strides. Many times investors turn into "long-term investors" because they feel that they will make it back someday. You convince yourself that If you hold it long enough, the stock will have to come back up - sometimes it doesn't come back up. Principle #5: Money Management Isn't that what the old Merrill, Lynch, Pierce, Fenner and Snit, publicized as their accounts - money management accounts. I think I had one of those accounts, many years ago. That's not what we're talking about now. If we are going to have a stock market trading and timing system, we need to put on money management. We need to somehow know when to "take the money and run"! We cannot go into all the particulars in this article, but to give you the simple principle, you have to take profits as the stock, or broad-based index is going in your favor. When you have the precise amount of profits, which is defined by the money management system, then, you should cull them. Sell your holdings and put the money into your account, before the market reverses its direction and takes your profits away. If you do follow a defined, tested, money management procedure, you will find that you don't have to be racked as much draw-down. Draw-down is defined as the amount you are willing to lose from where you bought, before the investment goes back into the positive direction - or, in many cases, you abandon the trade. However, if you take the gains when the trend is very likely to end, you improve your account balance. To review: You need to gain security by diversification. You have to have an easy to follow stock market trading system that doesn't take much of your time. You have to have a way of discerning whether the market is bullish, bearish, or should you sell and be out of the market for a while. You need to know when and how to take profits as they present themselves. And, finally, you need to know doesn't succeed.
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