Being Wrong Buying Stock is Okay

Being wrong is OK, but let's not carry it to extremes. That applies to everything, but let's limit our discussion here to the stock market.

I have been trading for several decades and was an exchange memebr and floor trader for 17 years. You learn fast there or you go broke in a hurry. As you can see I managed to hold my own for a few years until I found the secret and started to become a successful trader. Every professional trader I know knows the one great secret and that is to keep your losses small.

We all learned that when we took a position - either long or short - that we better be able to jump out if the trade was not going our way. Many of my friends were scalpers. That means they were trading for just a few ticks and every night went home flat. Flat is no positions at all.

Others, myself included, took a longer look and planned to hold a position for a period of time. That could be several days or weeks. If you were right the longer you held on the more money you would make.

The general public seems think that exchange members know everything and always made money. Tain't so. Many traders were wrong more than 50% of the time. Huh? Yes, fifty percent. My account had losses 40% of the time and 20% were scratch trades (neither winners nor losers).

You ask, "If you are out of the money 60% of your trades how can you make money?" This is what every professional knows: Keep your losses small and let your profits run. How many times have you heard that one? BUT how many times have you ignored that rule?

At the end of the year when you analyze your trades you find that you made $3.00 for each $1.00 you lost you will show a nice big profit.

I don't care what business you are in you don't put your whole wad on a single outcome and stick with it until it either works or go broke. That is what brokers and mutual fund managers want you to do. They want you to buy, but never sell.

It is a tragedy for the small investor today that mutual fund families are putting in selling restrictions to discourage investors from dumping funds that are headed down. Many require long holding periods and if you sell prior to that time they charge an extra fee of 2%. They give lame excuses that I know are not true for doing this. Never buy any fund or trade with any brokerage company that has that kind of rule.

It is cheaper to pay the 2% or whatever fee there is and get out than hang around and lose 20% to 40% of your equity. Look back at 2000 to 2003. This can happen again despite what your broker tells you.

Be wrong and run home with most of your money. You still have enough to invest in a better opportunity. If you are disciplined to get out of any bad situation early you will end up a rich person.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

---

Chart Reading

As an investor you will want to check out any... Read More

Online Investing & Online Stock & Share Trading: Difficulty in Taking Stop Losses in the Market

This is an extract of an article which was first... Read More

A Good Fund Manager

Every Wall Street analyst, financial planner and broker will tell... Read More

Stock Loans

Hedge current portfolio positions and gain access to capital resources... Read More

Dont Spend Another Dollar on Business Opportunities Until You Read This

With an insecure job market, overworked employees, insufficient retirement savings... Read More

Basics of Stock Market

Financial markets provide their participants with the most favorable conditions... Read More

Traders, Defend Against the Dreaded Death Spiral.

It has often been said that there is only two... Read More

The Shadow

The Shadow knows. There used to be a radio program... Read More

Choosing A Fund

For years I have been saying you must have a... Read More

Mutual Fund Honor Roll ? Buy High, Sell Low by Chasing Performance

Buy high and sell low -- It's not a typo.Millions... Read More

How to Pick Winning Stocks

There is nothing more exciting than finding an undervalued stock... Read More

Keep Your Profits

It looks like we have now entered a new bull... Read More

Stuff

I continually hear from economists, talking heads, other market letter... Read More

Economists

In today's volatile and confusing stock markets everyone is searching... Read More

The Problem With Hedge Funds

Are hedge funds a suitable investment for you? Hedge funds... Read More

Different Ways of Buying Stocks

Let's say you are interested in this one company. You... Read More

What is a Trading Plan ? and Why You Need One?

How do you make money without picking tops and bottoms?I... Read More

Trading Systems

To become a successful trader you must have some kind... Read More

War Market

There is no question that the stock market is being... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

Municipal Bonds

Because there are so many stocks that are NOT paying... Read More

Race Horses and Mutual Funds

For years investors have been taught to look into the... Read More

Alfred E. Newman

What! Me worry?Many of you remember the cover of MAD... Read More

Leverage - Margin Debt

What is leverage?Here is a definition of leverage from an... Read More

Acapulco - The Stock Market Dives

There is a famous cliff on the ocean in Acapulco... Read More

Stocks: Understand What You Buy!

"There is nothing more frightful than ignorance in action!" Johann... Read More

How To Pick A Mutual Fund

Mutual funds by definition are a mixed bag of stocks,... Read More

Cash

How many people went to a cash position this week?... Read More

How Much Money Can I Make With Trading? What Account Size Do I Need To Start?

What account size do I need?How much money can I... Read More

Stock Market Diversification

In one of my previous articles (Investing in the stock... Read More

How to Make Big Money Safely in Stock Market

(1) Stock Market is Tough Place to Make Any Money... Read More

3 Components Needed for Beating the Market

Time to look back2004 is over, now we are in... Read More

365/7/24

What does it take to be a stock trader? It... Read More