Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Most Important Trade You'll Ever Make

InvestorEducation / Learning to Invest Nov 08, 2014 - 11:55 AM GMT

By: Money_Morning

InvestorEducation

Shah Gilani writes: Seasoned investors know there are ways a trade can go wrong for you – that's why thorough research and tight investing discipline are so important.

But, the truth is, there's only one surefire way to lose your shirt, only one move that's absolutely, positively guaranteed to cost you money.

And it's a shockingly easy play to make. In fact, as of 2014, more than 52% of Americans have made this fatal trading mistake.


They didn't see it coming, and, even worse, plenty of these folks thought they were actually playing it safe.

But there's good news: this trap is as easy to avoid as it is to fall into. And once you avoid it, you'll never have to worry about it again…

The First Trade You'll Ever Make

That's right. The biggest mistake you can make is to not be invested at all.

Plenty of novice investors, like the one we'll hear from in a moment, are unsure of how to get started investing.

Take "K" here, for instance. K asked:

"Everyone has opinions – bear/bull market, don't buy bonds, sell and take your profits, buy XYZ stock… For a beginner, how do you figure out the best way to start investing?"

That's a great question, because it speaks to the heart of the matter. How do you do it? Getting started is extremely important – and we do it all the time.

You get started every time you make a trade, every time you pick an investment. So, you should treat every position you take like you're starting over.

There are almost innumerable ways to trade and invest and more how-to books and websites than any individual can count. And there's a lot of great advice out there in the information-overloaded world.

However, there's no single starting point that encompasses a universal truth from which you can launch headlong into the investing game and be successful.

The Universal Truth of Investing

It's true, there is a single universal truth from which to launch yourself. And even better, that truth, if you employ it above all others, will make you successful.
Here it is:

There is no "figure out the best way" strategy. There is only the position, putting on the trade, getting into it.

Make no mistake. All "investments" start out as a trade. It doesn't matter if you're putting on a stock trade, a bond trade, or a commodity trade – it's a trade.

There are only two directions the trade can go in: in your favor or against you.

Now, I'm going to digress here for a moment, and then come back to what you should invest in and when.

Do This and You Can Trade Anything

Personally, I can trade anything. I have traded stocks, bonds, commodities, currencies, packaged products, options, forwards, futures and derivatives – all quite successfully. I'm not an expert in everything I have traded, by any stretch of the imagination. But I have made money trading everything.

How? Because it's a trade; I'm either going to be right and make money or be wrong and lose money. And for me, not doing a trade is itself a trading decision.

The game is all about making money, nothing else. It's not about being an expert. It's not gambling either. It's simple. Do you know enough about where your trade may go to make money?

It's not about over-analysis, nor is it about jumping in on a guess. Making money in the market, any market, is about what you know, or think you know. That's why I can trade just about anything, be comfortable, and, far more often than not, make money. I trade on things I understand – not that I'm an expert in.

If I'm wrong, I get out. If I'm right, I stay in the trade. And sometimes I stay in for a long time, which makes it an investment holding.

So, how do you do it?

Obviously, start with something you know something about or are interested in enough to keep tabs on. Then you buy some shares. Then you manage the trade. You have to be in it to win it.

A Novice Investor's Story

Here's a real-world example. A young lady at a TV studio where I was appearing asked me the exact same question. And I gave her the same advice – along with some more that I'll give you below. She understood she had to make a trade to be in the game and asked me what she should start with.

I asked her to tell me what she was interested in. She liked fashion. I said pick a fashion stock. She didn't hesitate.

She blurted out, "I really love Michael Kors clothes." I said, "Then start with Michael Kors."

And she did. She didn't hesitate. She did some homework on the stock, Michael Kors Holdings Ltd. (NYSE: KORS) and the company, and she jumped in. The following week she told me she bought a few shares at $80.

She was happy when they were at $100. I asked her if she had followed my other "trade management" advice, and she said she hadn't. She was going to keep the stock because she was up so much.

She ended up selling it back down where she got in – actually a little lower.

Now, here's the advice you need. Make a decision to get into a trade because you believe (there's no such thing as "knowing") you understand the company, what it does, how it does it, how it makes money and whom its competitors are. Buy a few shares if you think they are going up. That's how you start.

Take a Deep Breath and Manage Your Trade

You could buy a tech company, you could buy an industrial company, a fashion company, an ETF based on oil, or corn, or a basket of financial stocks. The only thing that matters is that you think you understand what might happen. Then there's trade management.

You'll never panic when you put on a trade if you know how much money you'll be comfortable losing.

Don't lose more than you can laugh at. It's not a laughing matter, but if you lose a little and chalk it up to a learning experience (and you better figure out your lesson on every losing and winning trade), then you can keep trading. The more comfortable you are with understanding how much you can lose and be comfortable actually losing that, the more you will actually make.

Before you put on the trade, have a trade management plan. If it goes down a certain amount, get out and figure out what happened. Why did the stock go down? Was it something the company did? Something a competitor did? Did a falling market drag it down? What happened?

It is not important that you lost on that trade. What's important is that you understand why the stock went down.

Losing is not about you losing money (though it is in a secondary way). It is about you understanding why the stock or exchange-traded fund (ETF) or commodity went down.

If you understand, then you're not a loser. You've won by learning something, by gaining more experience, by understanding.

That's everything. Understanding makes you comfortable. It's power. It gives you power to believe it is you who will make money; it is you who controls your destiny.

Trade management is about knowing where you'll get out if you start losing on the position. And it's about what you do when you're making money.

There are many fun and profitable ways to manage the winning side of trades.

We'll get to them in due course.

This has worked worked for me for 33 years. I'm never afraid. I love to trade.

I hate to lose. But when I do, I always study what happened – I try to understand.

After all is said and done, trading and investing isn't complicated. Wall Street just wants you to think it is so you go running to them for advice – so they can soak you.

You can trade and invest and make a ton of money. It really isn't rocket science

It's mostly basic common sense, understanding who you are, and trusting yourself.

Get More from Shah: Shah's Insights & Indictments readers know the real story and bank the big profits, like the pair of double-digit tech gainers Shah recently predicted would surge when others said they'd sink. Click here for your free subscription and a copy of Shah's latest investor report, "The 'Great Rotation' Playbook."

Join the conversation. Click here to jump to comments…

Source : http://moneymorning.com/2014/11/07/the-most-important-trade-youll-ever-make/

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