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Winning In The Stock Market
How to be a Stock Market Winner
Investing in the stock market is a little like playing poker. You've got to know when to hold'em and when to fold'em.
Yes, not every stock you pick will be a winner. Even the best stock picking newsletter writers pick stock that will lose money for you.
But, some people are convinced that being able to pick winners is the single most important thing for success in the stock market. But the truth is, successful investors know that your profits really isn't all that counts.
The simple truth is you won't always be right. You're going to invest in some losers. It's not something you like to hear, but it's true. Isn't it?
Are There People Who Never Lose?
You may have met someone who claimed to be right 100% of the time. And if you haven't met that person yet, you'll run into him or her somewhere in the future. When you do, be careful. When someone tells you he or she is always right, in general, three scenario's are possible:
- You're talking to the world's best investor / trader
- You're talking to a textbook example of beginners luck
- You're talking to a liar
Let's take a quick look at all these possibilities.
That you're talking with the world's best investor highly unlikely. Fortunately it's easy to find out if this is the case. Just take a look at the person's track record. People that like to brag about being right all the time, usually enjoy making their point. So they would love to prove their track record to you. If they fail to cough one up, they're probably not telling you the truth.
That you are talking with a lucky beginner is lot more likely. In a bull market when nearly every stock was increasing in value nearly every investor could make a profit. However, in today's market you won't find a lot of those lucky beginners. Most of them got more than they could handle when the bubble burst. And many of them never had the courage, or the financial means, to return to the game of investing.
Then of course we have the third and most likely scenario. In this case, you would take the same approach as you did with the super investor. Simply ask them to show you their track record. The liar of course will never give you this. Instead they will try to convince you with wonderful stories. All of which are probably fascinating. Some would be interesting enough to serve as a plot for a Hollywood blockbuster on Wall Street. However, none of these stories will do you any good when it comes to making it in the stock market.
The simple truth is that nobody can invest for any period of time and be right all the time. It simply is not possible.
The Secret is to Limit Your Losses
Now that doesn't mean that anyone telling you they never lose is lying. It depends on what they really mean. They may not be claiming investment is a winner. What they're probably saying is that they never close out a year with a loss at the end. So how come they can make money every year even when they lose on some trades just like everybody else? The answer is simple; they are right more often then they are wrong. And more importantly, when they are wrong they limit their losses.
So next time when you're about to make a trade, ask yourself: "What if I'm wrong". Then determine a price level at which you will take your loss and get out.
Once you've determined this simple rule, just stick to it. Yes, you will lose a little money every once and a while. Even on trades that may bounce back just one day later. But in the long run losing a little will hurt far less than hanging on to a losing trade that plunges beyond hope of recover. So, remember to limit your losses.
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