Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19
Crude Oil Price Fails At Critical Fibonacci Level - 15th May 19
Strong Stock Market Rally Expected - 15th May 19
US China Trade Impasse Threatens US Lithium, Rare Earth Imports - 15th May 19
Gold Mind Reader's Guide to the Global Markets Galaxy: 'Surreal' - 15th May 19
Trade Wars and Other Black Swan Threats to Your Investments - 15th May 19
Our Long-Anticipated Gold Momentum Rally Begins - 15th May 19
Defense Spending Is Recession Proof - Defense Dividend Stocks - 15th May 19
US China Trade Issues Will Drive Market Trends – PART II - 14th May 19
The Exter Inverted Pyramid of Global Liquidity Credit risk, Liquidity and Gold - 14th May 19
Can You Afford To Ignore These Two Flawless Gold Slide Indicators? - 14th May 19
As cryptocurrency wallets become more popular, will cryptocurrencies replace traditional payments? - 14th May 19
How US Debt Will Reach $40 Trillion by 2025 - 14th May 19
Dangers Beyond a Trade War with China - 14th May 19
eBook - Greatest Tool for Trading? - 14th May 19
Classic Pitfalls for Inexperienced Traders - 14th May 19
Stock Market S&P 500 Negative Expectations Again - 13th May 19
Why Rising Living Standard in China Offers Global Hope - 13th May 19
Stock Market Anticipated Correction Starts On Cue! - 13th May 19
How Chinese Trade Issues Will Drive Stock Market Trends - 13th May 19
Amazon SCAM Deliveries for Fake Verified Purchaser Reviews "Brushing" - 13th May 19
Stock Market US China Trade War Panic - Video - 13th May 19
US Stock Market Leading Macro Economic Indicators Update - 12th May 19
SAMSUNG - BC94.L - Investing in AI Machine Intelligence Stocks - 11th May 19
US Increases Trade Tariffs Against China – Stock Markets, Gold, and Silver - 11th May 19
Who Has More To Lose In A No Deal Brexit? - 11th May 19
Gold at $1,344 Will Start Real Fireworks on the Upside - 11th May 19
Make America’s Economy Great Again - 10th May 19
Big US Stocks’ 2019 Fundamentals - 10th May 19
Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - 10th May 19
Stock Market Shake-Out Continues – Where Is The Bottom? - 10th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

How to Trade Your Way To Freedom

InvestorEducation / Learn to Trade Apr 15, 2014 - 10:52 AM GMT

By: Money_Morning

InvestorEducation

Shah Gilani writes: A few weeks ago, I told you a story about a woman who took my advice and used it to overcome her fear of investing.

As it turns out, it was an incredibly popular column.


Reader Robert from Vancouver wrote:

    Thanks Shah for trying to provide some financial education.

    There is a real and urgent need to teach people at least the basics of investing, the economy, and business.

I wholeheartedly agree.

That’s why I wanted to come back and build on the advice I originally gave you.

You see, once you make a decision to start investing, the next step is to make a commitment to become successful.

And today I’m going to show you how to make that next step…

To Be Successful You Have To Put On Trades

In a nutshell the advice I gave in my March 27 column was:

Start by taking positions in companies you know something about. It doesn’t matter if you like, or hate it. Just that you know enough about the company’s products, services, whatever they do, so the stock’s ups and downs make sense to you.

Once you pick a stock, you always start the same way. You put on the trade.

Never think that your trade, or your position, is an investment. It isn’t. It is a trade.

You can get out of it at any time.

If it turns into a brilliant pick, your trade will turn into an “investment” because it’s worth holding onto.

But to become a successful investor you have to start by putting on trades.

You can’t make money watching from the sidelines. But you also can’t be a deer in the headlights either. You can’t go into a trade and think it’s an investment and you’re stuck with it when it goes against you. It’s a trade!

And the reality is that some of your trades will be losers…

That means you will get out of positions with small losses. It’s part of the game. You will have some losses but they will be monumentally overwhelmed by the trades that will make great money. And the ones that keep going up and maybe pay you dividends will become the “core” of your investment portfolio.

And that’s your ultimate goal. You want to create an investment plan that leads to financial freedom.

Psychology and Perception are More Important Than Data and Facts

One of the reasons I say that you don’t need to be an expert on any company, or on any stock, is that no matter how much homework you do, no matter how much analysis you do, what makes perfect sense on paper may have nothing to do with how your stock trades.

When you watch your stock going up and down, you begin to understand the “psychology” of other investors – what they’re looking at, how they interpret news and data.

You’re one person with one position. There are millions of people like you watching that same stock. Collectively, their perception of news and data and the psychology of their fear and greed ultimately motivate them to take action, which moves the stock.

I can’t tell you how many times I’ve done copious amounts of research and been absolutely confident that I was putting on a winning trade, only to have my head handed to me because other traders’ perception of something that came along (it could be out of nowhere) was interpreted as a reason to sell the stock.

My saying is (and I live by it): Money moves markets, but psychology moves money.

What I’m saying is: Go ahead and do your homework. But your knowledge of your stock, or your position, has to include your understanding about how other investors perceive the stock and its likelihood to go up or down.

Market psychology is everything. I can trade anything, any stock, any bond, any commodity, any derivative, anything, because I trade on OPP – Other People’s Psychology.

It’s not easy reading the market’s psychology, or the perception the market has about a stock’s prospects. But it’s not hard either.

First of all, understand that there are two ways to trade psychology.

  1. You go with the flow.
  2. You go against the flow.

I do both, and quite successfully.

Going with the flow is all about the “trend.”

The Trend Is Your Friend

Live by that and you will make a lot of money.

In terms of market psychology I always look for the big picture first. What is the big trend? Is the market (we’re talking about stocks) in an uptrend or downtrend?

If it’s an uptrend I want to be buying stocks. If it’s a downtrend I want to be shorting.

Always go with the flow by trading within the big trends.

After all, if the market is going higher, why would you fight it? You don’t, you ride it.

Of course, there are nuances in following the big trend. The general market may be going higher but maybe the stock you want to buy falls in an industry that’s not going along with the big trend. You have to be careful about that.

That’s where going against the flow might come into play.

I make a lot of money following the trends and riding them. But, sometimes I go against the trend.

The reasons to go against the big trend start with the big trend. Maybe you see it stalling out. Maybe you think it’s about to turn around and go the other way. It’s at these junctures that going against the trend, in measured fashion, can be very profitable.

If I think the psychology has changed and the general market is turning bearish, but the market has still been holding onto its gains, such that I see selective selling, or profit-taking, I will put on a counter-trend position.

If you put on counter-trend positions at inflection points, meaning where the market seems like it could change, you aren’t taking a stupid risk. Instead, you are taking a shot that you can get ahead of the bigger shift in psychology.

What’s critical, is that whenever you take a counter-trend position you don’t “get married” to the position.

You’re going against the trend, which you don’t generally want to do. But because picking tops and bottoms can be extremely lucrative (and trying to do that exponentially ups your learning curve) it’s worth the risk. Again, you only do that when you think you sense a change in the trend.

If I take a counter-trend position and the trade starts out against me, I get out just as the big trend reconvenes its footing and continues. I will lose a little and move on.

Here’s another way to play a counter-trend within a bigger trend: Buy that stock you wanted to buy but didn’t because its industry group wasn’t following the big trend higher.

At some point, when I think that stock and its industry may be out of favor enough, I’d consider buying in. Why? Because if the big trend is still up and I think it’s strengthening, then buying an out-of-favor stock that has already gone down (but is a fundamentally good company, not some crazy stock) isn’t as risky as it seems.

And if you’ve done your homework and like the stock but have been surprised that it has gone down in a rising market, then you’ll know instinctively if it has gone down enough to make it a good “value” in the rising market. That’s not a risky position.

I can’t impress upon you enough that you know more than you think. You have to trust yourself. Use your own knowledge of how people react to gauge mass psychology, which sometimes is mass delusion. But that’s another lesson.

So, I’ll say it again. Tune yourself into the psychology of the market. The psychology of other traders and investors, of what they are reacting to, of their fear and greed.

Perception is reality when it comes to how money reacts.

Soon we’ll get into identifying trends and counter-trends and how specifically to trade them. I will recommend actual positions for us to take.

Source : http://www.wallstreetinsightsandindictments.com/2014/04/trade-way-freedom/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules