Being Wrong Buying Stock is Okay






Being wrong is OK, but let's not carry it to extremes. That applies to everything, but let's limit our discussion here to the stock market.



I have been trading for several decades and was an exchange memebr and floor trader for 17 years. You learn fast there or you go broke in a hurry. As you can see I managed to hold my own for a few years until I found the secret and started to become a successful trader. Every professional trader I know knows the one great secret and that is to keep your losses small.

We all learned that when we took a position - either long or short - that we better be able to jump out if the trade was not going our way. Many of my friends were scalpers. That means they were trading for just a few ticks and every night went home flat. Flat is no positions at all.

Others, myself included, took a longer look and planned to hold a position for a period of time. That could be several days or weeks. If you were right the longer you held on the more money you would make.

The general public seems think that exchange members know everything and always made money. Tain't so. Many traders were wrong more than 50% of the time. Huh? Yes, fifty percent. My account had losses 40% of the time and 20% were scratch trades (neither winners nor losers).

You ask, "If you are out of the money 60% of your trades how can you make money?" This is what every professional knows: Keep your losses small and let your profits run. How many times have you heard that one? BUT how many times have you ignored that rule?

At the end of the year when you analyze your trades you find that you made $3.00 for each $1.00 you lost you will show a nice big profit.

I don't care what business you are in you don't put your whole wad on a single outcome and stick with it until it either works or go broke. That is what brokers and mutual fund managers want you to do. They want you to buy, but never sell.

It is a tragedy for the small investor today that mutual fund families are putting in selling restrictions to discourage investors from dumping funds that are headed down. Many require long holding periods and if you sell prior to that time they charge an extra fee of 2%. They give lame excuses that I know are not true for doing this. Never buy any fund or trade with any brokerage company that has that kind of rule.

It is cheaper to pay the 2% or whatever fee there is and get out than hang around and lose 20% to 40% of your equity. Look back at 2000 to 2003. This can happen again despite what your broker tells you.

Be wrong and run home with most of your money. You still have enough to invest in a better opportunity. If you are disciplined to get out of any bad situation early you will end up a rich person.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

 Continue for more related information:
RELATED RESULTS:


 

How Covered Calls Turned a Trader Around
Sidney felt sick as she looked at her latest OptionsXpress trading statement. In just 8 months, she had managed to turn her ...

401K-itis
Are you one of those many people who dread reading their 401K statements? You have been watching it decline for about 2 years and are wondering if will eve...

Stock Analysis
I receive emails from Morningstar. This company provides statistics and analysis of just about every publicly traded stock company you can think of as...

Smart Day Trading Strategies to Help You Make Money in the Stock Market
Stock trading can be a very profitable activity. You can make big amounts of cash in a short ...

An Old Proverb for Investing
"If you don't know where you are going, any road will get you there." ...

When Should I Sell?
People are always asking me when should I sell my stock or mutual funds? ...

Inertia Syndrome
When it comes to buying a stock or mutual fund most people act pretty quickly. There are some who will take the time to get a report from Morningsta...

Hot Stock Investing ... How to Pick Hot Stocks with Momentum Stock Trading
Profitable day traders recognize that momentum trading is among the fastest & most effecti...

How to Short Stocks? How to Make Money when Your Stocks Go Down by Shorting
The stock market can present you with a lot of hot stocks every day. Many of them are new...

The Secret Art of Backtesting
If you have not back tested your trading system, you might as well trade with your eyes close. ...
Table of Contents | Article-Max Directory