Monday, September 7, 2009

Stock Trading Advice

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Hey there. I am back here on Stock Market Investing Today to share some stock trading advice. As always you've got to remember to check the overall markets first and make sure they are trending up. After you know the market is going up and the pressure to bring stocks down by the general market is not there, it's time to start putting together a stock buying and selling strategy.

I know that over the course of my stock market investing experience, I've noticed that just because a stock increases in value doesn't meant that it will always go up. In fact, I'd always notice that one year an industry sector may be 20-25% down while another may be up 20-25%. The following year, it might be the opposite. The overall lesson here is that stocks go down in value at some point, even the best ones. This leads to one important question and that is why hold on to it through thick and thin. The buy and hold philosophy when it comes to individual stocks should not be in your vocabulary. You are going to guarantee yourself that at some point it's going to come down in value and lose your gains. It might make sense to buy and hold mutual funds, but not individual stocks you purchase for your portfolio.

So when you go into a stock purchase, you need rules for two things.

  1. You must know when you want to buy a stock
  2. You must know when to sell it.
Holding a stock indefinitely is not an option. The reason why is because when the demand institutional buyers place on a stocks price disappears, the price falls. Let's say you someone gives you some online stock market advice to buy a stock. Let's say that it' a good recommendation and you quickly see the stock price go up. You are thrilled. Then, after a few weeks, you see the stock come down a little bit, but then that voice in your head, that's been ingrained by the market to never let go of a stock kicks in. The free stock trading advice you've always been given. Buy for the long term.

Meanwhile, the price goes down a little further and, unknown to you, the institutional buyers are in the process of getting out. A little while longer, and they are completely out. Then the news comes that earning are out and it plunges farther and buy then you've lost what you gained and are now below your purchase price wondering what happened.

The markets are driven by these big institutional buyers. When they are buying a stock it has to go up based on the huge demand they place on it's price. When they sell, the exact opposite happens. Your job is to tune into these clues and it works just like watching the general market. What you want to see is the stock going up in price on higher volume. If you see it going down in price on higher volume, that is your clue that something is going on.

Before we get into that, let's talk about two specific sell rules that you should have in place.
  1. Sell any stock you buy that goes down in price 7-8%
  2. Sell any stock that goes up 20-25% (unless it goes up very, very quickly which we talk about later.)
By following these two rules, you only need to be right one in four tries to make money. You might strike out three times and the fourth time, you'll pick a winner. I'll call it hitting singles. By picking stocks and containing your losses, you protect your money to invest another day.

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