The key is knowledge
The key to making a lot of money in the stock market, or any other trading venue is knowledge. To become an elite trader, you must be proficient in a number of important areas. This includes implementing a successful trading plan, having sound money management, and utilizing proper trading psychology. As you learn each component of success, it will have a cumulative effect on your overall trading knowledge, and of course, your stock market results.
Keep your losses small
When it comes to successful trading, there is nothing more important than sound money management. If you take big losses, not only will you lose your monetary capital, but your psychological capital as well. Keep all your losses small. Get out quickly if the market goes against you. As an example, when I buy a stock, I will never let the price drop more than 10% below the purchase point. If I buy at 50 dollars per share, I am out, no matter what, at 45 dollars per share. Many times I will sell a stock that drops 5% below the buy price. It takes discipline to cut your losses short, but its a must if you want to achieve exceptional stock market results.
Let your profits run
One of the biggest mistakes traders make is to quickly take a small profit. The psychological need to be right, and to feel good is strong. Unfortunately, you will rarely make the really big money following this tactic. Jesse Livermore, quite possibly the greatest stock market operator ever, stated the money is made by sitting, not trading. He said to be right and sit tight. The big money is made in the big price movements, and this generally takes time. There is no reason to close out a position, unless objective analysis tells you to do so.
Determine the general market trend
A major key to success in the stock market is to determine the general trend of the overall market. This can be done by the proper use of price and volume analysis. When you see 5 or 6 distribution days in a 2 to 4 week period, there is a good chance the general stock market will be going through a correction, or maybe even the beginning of a major bear market. Since about 75% of all stocks follow the general market direction, it is imperative to know if the market is in a confirmed uptrend or downtrend. You should only make new stock purchases in a confirmed uptrend. This will really help your stock market results.
Be patient and wait for the right opportunity
Patience is a key characteristic of the world’s best traders. It is important to wait until just the right moment, before taking a position in the market. This means putting as many factors as possible in your favor. All trading is based on probabilities, and you always want the odds on your side, before making a new stock purchase. I will see an opportunity as it develops. I will envision several possible scenarios, and if a stock meets my exact requirements, fundamentally and technically, I will then buy the stock. The ability to buy the best stocks at the best time will really enhance your stock market results.
Proper trading psychology is what makes you elite
Understanding, and then implementing proper trading psychology, is what separates a decent trader from the best in the world. Emotions such as greed, fear, and hope are the biggest enemy facing all traders and investors. In reality, it is not you against the market, it is you against yourself. Once you can effectively control, or better yet, eliminate emotions from your trading equation, you will be shocked at how more and more money seems to accumulate in your trading account. This is because emotions cloud your thinking. To be successful in the long run, you must think and act objectively.
In summary, the world’s best traders and investors utilize a successful trading plan, they practice sound money management, they understand, and implement proper trading psychology. Once you master these 3 critical areas, you too will see great stock market results. You might even make a fortune.