There are a lot of important things you need to know to trade and invest successfully in the stock exchange or any other market. 12 of the most important things that I can share with you based on many years of trading experience are listed below.
1. Buy low – sell high. As simple as it sounds, the vast majority of investors do the exact opposite. Your ability to consistently buy low and sell high will determine the success or failure of your investments. Your rate of return is determined at 100% when you go public.
2. The stock market is always right and price is the only reality of trading. If you want to make money in any market, you have to mirror what the market is doing. If the market goes down and you are long, the market is right and you are wrong. If the stock market goes up and you are short, the market is right and you are wrong.
All other things being equal, the longer you stay with the stock market, the more money you will make. The worse you stay with the stock market, the more money you will lose.
3. Every market or stock that goes up will go down and most markets or stocks that have gone down will go up. The more extreme the movement up or down, the more extreme the movement in the opposite direction is once the trend changes. This is also known as "the trend is always changing rules".
4. If you are looking for “reasons” why stocks or markets make big directional moves, you will probably never know for sure. Since we are dealing with the perception of the markets – not necessarily the reality, you are wasting your time looking for the many reasons why the markets move.
A huge mistake most investors make is to assume that the stock markets are rational or that they are able to figure out why the markets are doing something. To make a profit trading, you just need to know the markets are changing – not why they are moving. Stock market winners only care about direction and duration, while market losers obsess over why.
5. Stock markets usually move before good news or fundamentals – sometimes months in advance. If you wait to invest until you fully understand why a stock or market is moving, you have to assume that others have done the same and you may be too late.
You need to position yourself before the biggest directional trend move takes place. The market reaction to good news or bad news in a bull market will most often be positive. The market's reaction to good or bad news in a bear market will most often be negative.
6. The trend is your friend. Since the trend is the basis of all profit, we need long term trends to make a lot of money. The key is knowing when to trend and stick with it for a long time to maximize profits. It is possible to make a lot of money by catching big market movements. Day trading or short term equity investment can
capture the shortest moves while waiting for the long term trend to establish.
7. You have to let your profits run and cut your losses quickly if you are to have any chance of success. Business discipline is not a sufficient condition for making money in the markets, but it is a necessary condition. If you don't practice very disciplined trading, you won't make money in the long run. This is a stock market 'system' in itself.
8. The efficient market assumption is fallacious and is in fact a derivative of the perfect competition model of capitalism. The root-efficient market hypothesis shares many of the same false assumptions as the perfect competition paradigm, as described by a well-known economist.
The perfect competition model is not based on anything that exists on this earth. Always profitable professional traders simply have better information – and they act on it. Most non-professionals trade strictly on emotion and lose a lot more money than they make.
The combination of top quality information for some investors and the usual panic as losses increase, caused by high buying and low selling for others, creates inefficient markets.
9. Traditional technical and fundamental analysis alone may not allow you to make regular money in the markets. Successful market synchronization is possible, but not with the analytics tools most people use.
If you eliminate optimization, data mining, subjectivism, and other statistical and data manipulation tricks, most trading ideas lose out.
10. Never trust the advice and / or ideas of trading software publishers, stock exchange vendors, market commentators, financial analysts, brokers, newsletter publishers, trade authors, etc. , unless they trade their own money and have traded successfully for years and / or provide third-party performance verification.
Note that very few have traded successfully over very long periods of time. Keep in mind that Wall Street and other financial firms make money by selling you something – not by instilling wisdom in you. You have to make your own business decisions based on a rational analysis of all the facts.
11. The worst thing an investor can do is suffer a large loss on their position or portfolio. Market timing can help avoid this all-too-common experience.
You can avoid making this huge mistake by avoiding buying things when they are tall. It should be obvious that you should only buy when stocks are low and sell only when stocks are high.
Since your starting point is critical in determining your total return, if you buy low your long term investment results are irrefutably better than those who bought high.
12. The most effective placement methods should take no more than four or five hours per week for most individuals and, for the majority of us, only one or two hours per week with little or no stress.