A Disciplined and Organized Approach to Trading in the Stock Market

A Winning Approach to Trading in the Stock Market

Many traders lose simply out of ignorance. They base their trades on hunches, news, or tips from friends, and do not define specific risk and profit objectives before placing trades.

Others have the merit of educating themselves but fall victims of their emotions. They hold on to losing positions hoping they will turn into winners and sell winners by fear of losing a small gain. They overtrade to fulfill a need for action or by fear of missing out.

The consistent winners follow a winning approach:

- They have a strategy to enter and exit trades
- They use good money management
- They take consistent actions, they follow a trading plan
- They keep good records so they can review their actions
- They avoid overtrading
- They have a winning attitude
- Trading Framework was designed to help you build those crucial elements into your trading.

A strategy to enter and exit trades

You need to a strategy to put the odds in your favor for each trade you take. Your strategy should be as objective as possible and include the following elements:

- Entry: conditions required before you can enter a trade - may include technical analysis, fundamental analysis, or both.
- Initial stop loss: price at which you will close the entire position if it does not go in your favor. The risk per share is the difference between the entry price and the initial stop.
- Initial price objective: price at which you will take some or all profits if the trade goes in your favor.
- Trade management: set of rules that dictates your actions while a trade is opened. It may include trailing stops, closing position, etc…

For every action you take, the reason should be clearly described in your strategy.

Example: Buy pullback - stock in an uptrend on daily chart

- Entry Setup: Price above rising 30 day moving average with 3 or more consecutive days with lower highs
- Buy signal: $0.05 above the previous day’s high
- Initial stop Below lowest of previous and current day’s low
- Initial objective At the previous pivot high - sell half
- Trade management Move stop below previous day's low daily

A more complete strategy would include market and industries conditions, technical indicators, conditions from different timeframes, etc..

Money management rules to keep losses small

The goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:

- Maximum amount at risk for each trade. The different between your entry price and your initial stop loss is your risk per share. Your maximum amount at risk for each trade determines the share size.
- Maximum amount at risk for all your opened positions.
- Maximum daily and weekly amount lost before you stop trading – avoid trying to trade your way out of a hole after a loosing streaks.

Example:

Maximum amount at risk for each trade: $200
Maximum total amount at risk for all my opened positions: $800
I stop trading until the following day if my realized loss for that day is over $600
I stop trading until the following week if my realized loss for that week is over $1000

During your learning phase, your goal should be to survive, not to make money. Start with low limits and raise them as you become a consistent winner otherwise you will simply go broke faster.

Good record keeping

Although the process of gaining experience cannot be rushed, it can be made much more efficient by keeping good records of your actions. Good records will allow you to:

- Review your actions at the end of each day to make sure you followed you strategy, not your emotions.
- Learn from your losses – they cost you money, make sure you get the education in return.

You should also keep a journal of your observations.

A trading plan to keep emotions out of your decisions

During trading hours, emotions will turn smart people into idiots. Therefore you have to avoid having to make decisions during those hours. This requires a detailed trading plan that includes your strategy and your money management rules.

For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.

You have to follow the plan without exception. Any valid reason for an exception - for example, correcting an oversight - should become part of the plan.

Overtrading

Sometimes the best thing to do is to do nothing. Not trading on those bad days is key to becoming a consistent winner – in some situations it is very tempting to overtrade:

- If you trade to fulfill a need for action, to relieve boredom
- If you can’t find the proper setup but can’t wait
- If you fear you are missing out on a great trade or on a great market
- If you want to make up for losses (revenge)
- If you trade to feel like you are working instead of sitting around. Trading involves a lot of work other than the actual buying and selling.

You should not trade under the following conditions

- You are not following my trading plan
- You have reached your daily or weekly maximum loss
- You are sick or very tired
- You are very emotional (upset, pressured to make money, self-esteem destroyed)
- You are using new tools you are not completely familiar with
- You need time to work on your trading plan

A winning attitude

Losing traders look for a “sure thing”, hang on hope, and avoid accepting small losses. Their trading is based on emotions. You must treat trading as a probability game in which you don’t need to know what is going to happen next in order to make money. All you need to know is that the odds are in your favor before you put a trade.

If you believe in your edge, which is you believe that the odds in your favor for each trade you enter, then you should have no expectation other than something will happen.

Your attitude will have a direct influence on your trading results:

- Take responsibility for all your actions – don’t blame the market or world events.

- Trade to trade well and for the love of trading, not to trade often and not for the money. The money will come as a result of trading well.

- Don’t be influenced by the opinions of others. Reach your own decisions and follow them.

- Be rigid with your rules and flexible in your expectations. Most traders are flexible with their rules and rigid in their expectations.

- Never think that taking money from the market is easy and never assume that you know enough.

- Have no particular expectation when you place a trade because you know that anything can happen.

- Don’t try to guess the future – trading is a game of probabilities.

- Use your head and stay calm – don’t get excited or depressed.

- Handle trading as a serious intellectual pursuit.

- Don’t count how much money you have made or lost while you are in a trade - focus on trading well.

Yves Mailhot
http://www.tradingframework.com
For A Disciplined and Organized Approach to Trading in the Stock Market

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Profitable Trading System

After you have found a profitable trading system that you already back-tested, how can you be sure that this system will produce the same gains in future.
Nobody can predict the future, your system can easily make losses in next years or can be no tradable.
There are some tests you must do before accepting a trading system, these tests swill show the robustness of your system and when passing these tests, it will be more likely to show gain in future.

Test 1 : Make sure that you put liquidity rule, that your entry and exit prices are realizable.

Test 2: Examine again your trading systems and your rules (This is very important).
I made dozen of trading systems that showed great results but after more examination, it showed that i cannot follow them in real life.
Check if there is one stock that made very big gain, the system will maybe become no profitable without this stock.

Test 3: Change twice or 3 times the date of begin for the simulation, if it still show good results then it has passed the test 3.

Test 4: Change values of some parameters or variables you have in your trading system rules, you must change one value and then back-test, change another and then back-test...
If the results are not affected very badly then it passed the test 4.

Test 5: Try to restrict the system from buying 20% or more of stocks you previously bought when doing the back-test. Then re-run the back-test. To pass this test, system must show pretty the same results as before.

Test 6: Equity chart must have a good look, check some statistic values like sharpe ratio, sortino ratio, standard deviation, maximum drawdown, average day for gains recovery...
It depends on the risk you are willing to take but choose only systems that have : higher sharpe ratio, higher sortino ratio, lower standard deviation, lower maximum drawdown...
Exclude systems that have very big max drawdown, standard deviation and average day for gains recovery.
The must important factor i think is average day for gains recovery.
Its the average number of day that you must wait until your equity value will goes back to the same level before the drawdown happen.
Big values will let you wait for long times before recovering gains and for sure many traders will abandon their trading system, and that's the worse thing that can happen to a trader because just after that, the system will show excellent results. (This always happen)

Theses tests are very restrictive and you will reject maybe all your trading systems, but when trading you will put your money, real money, so i think you must be very selective to make all chance in your side.

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The Time Value of Money

Life is about decisions, whether they relate to your work, business or personal life. Often ignored is the interplay between all these areas, and the fact that a little interdisciplinary thinking can go a long way. This might sound obtuse, but many important decisions can be made easier by thinking simply, and a bit differently.

Before we do, a note about value, and 'utility'. Business is about creating value. Our personal lives (according to economists) are about maximizing our utility, where utility is simply a measure of the happiness or satisfaction gained from a good or service.

Think of it this way, and business is considered first. If shareholders (either owners or investors) could create more value themselves using other means, why bother running or investing in a business? Assuming we don't all have a perpetual income stream it comes back to this - if you don't create value in today's economy, you'll be forced to do one of two things. Change how you do things, or cease to exist. For business the value question is rather important.

People have it a little easier in some respects. Creating maximum utility is an incentive in and of itself. In the end, we all want more, whether it is revenue and growth for business, or old-fashioned utility in our personal lives.

To get more, we return to the decisions mentioned earlier, as all the decisions we make have a direct impact on both value creation and utility maximization, in particular those related to finance. Successful strategic management (the direction you want to take the business) is supported by your investment policy (choosing which projects to undertake) and your financing policy (how you fund everything). Linked to all of this is risk management, or how you handle the risks associated with these financial decisions.

Personally, financial decisions influence your quality of life, and your ability to enjoy the things you want. Once again we are back looking at the study of incentives - how people get what they want, or need, especially when other people want or need the same thing. In this case, it's maximum utility.

One of the cornerstones of modern finance assists us in understanding which decisions to make, and it is equally applicable to business and personal finance. Its known as the time value of money. Simply put, $1 today is worth more to you than $1 received in the future. Why? Money has a time value because of interest rates, no matter how measly, making $1 today more valuable than $1 received at some time in the future because it can be invested today to provide a return. The income from the investment will in turn, make the dollar you get today worth more than the one promised you in the future. Perhaps an example best illustrates the point.

Anne is offered the choice between $100 now, and $100 in a year's time. She takes the cash now, and invests it in a security (or bank) yielding 8%, and in a year has $108, which is clearly more than if she deferred taking the money at the start.

Again, this comes back to the incentives mentioned earlier. Interest rates are paid because someone else can use your money now, and they are prepared to pay you a return for the privilege of doing so, which is in truth a premium for taking the risk of giving your money to someone else. With business, this concept is part of what is known as the Sharpe-Lintner Capital Asset Pricing Model (CAPM for short), allowing people to work out, in today's terms, the value of future cash flows on any project or decision requiring investment. Widely used, this concept varies in appearance and complexity, from sophisticated models developed by General Electric to the small business owner using the 'NPV' formula in an Excel spreadsheet.

There is another side to this discussion, and it's slightly more personal. The time value of money can apply to you, and specifically, your utility. To understand how, we need to look at things the other way around and get a handle on the incentives of everyone involved.

Think of large personal assets you might have, like a structured settlement. The agreements reached in setting up the settlement left you with a sense of security for the future and continuing, dependable payments over time. Comfortable. Hmm. Let's look at the incentives.

Think like they do. The illusion is that you will be better off down the track with the settlement. The problem is, they don't want you to have all your money now because they understand the time value of money. Its worth more to them, and they bank on the fact that you haven't given it a second thought.

Remember that structured settlements are designed so that the paying company get the maximum benefit from the time value of money. This doesn't happen by accident or through some amazing act of benevolence driven by concern about your long term well-being. It's pure market and negotiating power. Considering the time value of your settlement, the incentive is for them to keep your money as long as possible to maximize their value growth.

The intent of this discussion is to make you think. Consider the time value of money in your personal life. How much value is there for you in holding first-mortgage on a property for 20 years, compared with maximizing your utility? How much utility is your monthly settlement check going to provide you in 10 years? Just think about increases in the cost of living over the next fifteen years, and how the monthly check stands up.

Avenues exist in today's marketplace for you to better utilize these high-value assets like structured settlements and real estate notes. Naturally, decisions to do so should not be taken lightly, treating your largest assets as whimsically as an ATM card. Whether in business or in your personal life, always consult a diverse range of industry professionals to increase the amount of information and knowledge brought to bear on any decision. As mentioned at the start, risk management is an important part of any decision making process.

Remember the time value of money. It can be used both for and against you. And find out which way it is being used, just look to which party has the larger incentives.

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Forex Course: A Quick Forex Guide for Traders

In this Forex course we will review some steps you need to take care before you venture into your trading journey. Most traders venture into the Forex market with little or no experience in the Forex market. This results in painful experiences like loosing most of the risk capital, frustration because it seemed so easy to make money, etc.

The first thing you need to realize is that, it is not easy to make money. As every other endeavor in life, where important rewards are to come after mastering it, you need to work hard. You need to get very well educated and experienced before having the possibility to receive important rewards on it. The key on mastering the Forex market relies on commitment, patience and discipline.

Ok, you have decided you are going to trade the Forex market, you have seen several advertisings featuring how easy is to make money in the Forex market. You might think this is your opportunity to reach your financial freedom, right away, time is money, why waiting any longer if you have the opportunity to make money now. I know, I’ve been there, but you have a chance now, I didn’t, no body told me what I am going to tell you.

We, Forex traders, make transactions based on a set of rules. These sets of rules are what we call a Trading System. Our systems tell us the exact time where we need to get in the market and out the market in order to make a profit (i.e. buy low sell high.)

Creating a system is the first big step you need to take care first. Why is this so important? Because you need to build a system that suits your personality, otherwise you are going to find hard to follow it, thus hard to profit from. A system can be based on technical indicators or what we called a mechanical system or based on experience and intuition or what we call discretionary systems. I highly recommend using and trying first a mechanical system, because discretionary systems are dangerous during the early stages of a Forex trader (can lead to indiscipline.) With experience, on later stages, you will find out which signals work better and which ones to avoid.

The next step in this Forex course is to try your system on a demo account. Most Forex brokers offer a demo account, an account with virtual money. This is an excellent choice to test your trading system as there is no money at risk. In this step you will figure out if the strategy works for you. If you feel comfortable trading it, then it is most likely to produce good results. How much time should you stay in this step? It varies, but you shouldn’t go one step further until your system gets consistent profitable results over a period of time. It can take many months, but remember, you need to be patient.

You must be honest to yourself; you need to take every single signal generated by your system, not only the signals you thought were going to work, otherwise, you are going to have problems in the next two steps.

Ok, by know you had consistent profitable results on your demo account. You might think its time to go full. Nope, nope, nope. There is a big difference between trading a demo and a real account. The most important difference lies on emotions (fear, greed, anger, etc.) These are psychological barriers that affect every single decision made by traders regardless of what he/she is trading (stocks, bonds, Forex, futures, grains, etc.) These emotional factors, in my opinion, are the most determinant factor that separates profitable traders from the others.

The next step in this Forex course is specially designed to deal with emotions and to confirm the results obtained in the prior step (consistent results in a demo account.) At this step you need to trade in a real account with limited funds. Some brokers offer fractional lot trading. Meaning you are able to trade any desired amount (even cents.) The important thing here is that these emotions we’ve been talking about are present only when there is real money at risk. At this stage, you are going to see if you are really comfortable trading your system and if you are able to trade with such system, remember different systems produce different emotions. If you are able to produce similar results than those obtained in a demo account, then ready for the next step. If you didn’t, then you might need to create another system, there is chance your system never fit you. If you created consistent profitable results on this stage, you have a chance to produce similar results in the next one, on the other hand, if you didn’t produce good results in this stage, you will not be able to make on the next stage. Remember, you need to do things right, and be honest to yourself.

The last stage is trading in a real account with sufficient funds. If you are at this stage, and have passed successfully every prior stage, then you have a chance to make it, go ahead and try it, you need to be confident in yourself and in your system, your strategy have already produced consistent profitable results, there are reasons to believe you are going to make it. Very few traders fail at this stage (if passed successfully prior stages.)

Trading successfully is no easy task, it requires a lot of work, patience, discipline, and education. By completing the steps outlined in this Forex course, you have a chance to produce profitable results. I repeat it again, you need to be honest to yourself about the results obtained in every stage. Some times you might need expert guidance regarding your system development strategies.

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A New Wall Street Line Dance: Performance

It matters not what lines, numbers, indices, or gurus you worship, you just can't know where the stock market is going or when it will change direction. Too much investor time and analytical effort is wasted trying to predict course corrections… even more is squandered comparing portfolio Market Values with a handful of unrelated indices and averages. If we reconcile in our minds that we can’t predict the future (or change the past), we can move through the uncertainty more productively. Let's simplify portfolio performance evaluation by using information that we don’t have to speculate about, and which is related to our own personal investment programs.

Every December, with visions of sugarplums dancing in their heads, investors begin to scrutinize their performance, formulate coulda’s and shoulda’s, and determine what to try next year. It’s an annual, masochistic, rite of passage. My year-end vision is different. I see a bunch of Wall Street fat cats, ROTF and LOL, while investors (and their alphabetically correct advisors) determine what to change, sell, buy, re-allocate, or adjust to make the next twelve months behave better financially than the last. What happened to that old fashioned emphasis on long-term progress toward specific goals? The use of Issue Breadth and 52-week High/Low statistics for navigation; and cyclical analysis (Peak to Peak, etc.) and economic realities as performance expectation barometers makes a lot more personal sense. And when did it become vogue to think of Investment Portfolios as sprinters in a twelve-month race with a nebulous array of indices and averages? Why are the masters of the universe rolling on the floor in laughter? They can visualize your annual performance agitation ritual producing fee generating transactions in all conceivable directions. An unhappy investor is Wall Street’s best friend, and by emphasizing short-term results and creating a superbowlesque environment, they guarantee that the vast majority of investors will be unhappy about something, all of the time.

Your portfolio should be as unique as you are, and I contend that a portfolio of individual securities rather than a shopping cart full of one-size-fits-all consumer products is much easier to understand and to manage. You just need to focus on two longer-range objectives: (1) growing productive Working Capital, and (2) increasing Base Income. Neither objective is directly related to the market averages, interest rate movements, or the calendar year. Thus, they protect investors from short-term, anxiety causing, events or trends while facilitating objective based performance analysis that is less frantic, less competitive, and more constructive than conventional methods. Briefly, Working Capital is the total cost basis of the securities and cash in the portfolio, and Base Income is the dividends and interest the portfolio produces. Deposits and withdrawals, capital gains and losses, each directly impact the Working Capital number, and indirectly affect Base Income growth. Securities become non-productive when they fall below Investment Grade Quality (fundamentals only, please) and/or no longer produce income. Good sense management can minimize these unpleasant experiences.

Let’s develop an "all you need to know" chart that will help you manage your way to investment success (goal achievement) in a low failure rate, unemotional, environment. The chart will have four data lines, and your portfolio management objective will be to keep three of them moving upward through time. Note that a separate record of deposits and withdrawals should be maintained. If you are paying fees or commissions separately from your transactions, consider them withdrawals of Working Capital. If you don’t have specific selection criteria and profit taking guidelines, develop them.

Line One is labeled “Working Capital”, and an average annual growth rate between 5% and 12% would be a reasonable target, depending on Asset Allocation. [An average cannot be determined until after the end of the second year, and a longer period is recommended to allow for compounding.] This upward only line (Did you raise an eyebrow?) is increased by dividends, interest, deposits, and “realized” capital gains and decreased by withdrawals and “realized” capital losses. A new look at some widely accepted year-end behaviors might be helpful at this point. Offsetting capital gains with losses on good quality companies becomes suspect because it always results in a larger deduction from Working Capital than the tax payment itself. Similarly, avoiding securities that pay dividends is at about the same level of absurdity as marching into your boss’s office and demanding a pay cut. There are two basic truths at the bottom of this: (1) You just can’t make too much money, and (2) there’s no such thing as a bad profit. Don’t pay anyone who recommends loss taking on high quality securities. Tell them that you are helping to reduce their tax burden.

Line Two reflects "Base Income", and it too will always move upward if you are managing your Asset Allocation properly. The only exception would be a 100% Equity Allocation, where the emphasis is on a more variable source of Base Income… the dividends on a constantly changing stock portfolio. Line Three reflects historical trading results and is labeled “Net Realized Capital Gains”. This total is most important during the early years of portfolio building and it will directly reflect both the security selection criteria you use, and the profit taking rules you employ. If you build a portfolio of Investment Grade securities, and apply a 5% diversification rule (always use cost basis), you will rarely have a downturn in this monitor of both your selection criteria and your profit taking discipline. Any profit is always better than any loss and, unless your selection criteria is really too conservative, there will always be something out there worth buying with the proceeds. Three 8% singles will produce a larger number than one 25% home run, and which is easier to obtain? Obviously, the growth in Line Three should accelerate in rising markets (measured by issue breadth numbers). The Base Income just keeps growing because Asset Allocation is also based on the cost basis of each security class! [Note that an unrealized gain or loss is as meaningless as the quarter-to-quarter movement of a market index. This is a decision model, and good decisions should produce net realized income.]

One other important detail No matter how conservative your selection criteria, a security or two is bound to become a loser. Don’t judge this by Wall Street popularity indicators, tea leaves, or analyst opinions. Let the fundamentals (profits, S & P rating, dividend action, etc) send up the red flags. Market Value just can’t be trusted for a bite-the-bullet decision… but it can help. This brings us to Line Four, a reflection of the change in "Total Portfolio Market Value" over the course of time. This line will follow an erratic path, constantly staying below "Working Capital" (Line One). If you observe the chart after a market cycle or two, you will see that lines One through Three move steadily upward regardless of what line Four is doing! BUT, you will also notice that the "lows" of Line Four begin to occur above earlier highs. It’s a nice feeling since Market Value movements are not, themselves, controllable.

Line Four will rarely be above Line One, but when it begins to close the cap, a greater movement upward in Line Three (Net Realized Capital Gains) should be expected. In 100% income portfolios, it is possible for Market Value to exceed Working Capital by a slight margin, but it is more likely that you have allowed some greed into the portfolio and that profit taking opportunities are being ignored. Don’t ever let this happen. Studies show rather clearly that the vast majority of unrealized gains are brought to the Schedule D as realized losses… and this includes potential profits on income securities. And, when your portfolio hits a new high watermark, look around for a security that has fallen from grace with the S & P rating system and bite that bullet.

What’s different about this approach, and why isn’t it more high tech? There is no mention of an index, an average, or a comparison with anything at all, and that’s the way it should be. This method of looking at things will get you where you want to be without the hype that Wall Street uses to create unproductive transactions, foolish speculations, and incurable dissatisfaction. It provides a valid use for portfolio Market Value, but far from the judgmental nature Wall Street would like. It’s use in this model, as both an expectation clarifier and an action indicator for the portfolio manager, on a personal level, should illuminate your light bulb. Most investors will focus on Line Four out of habit, or because they have been brainwashed by Wall Street into thinking that a lower Market Value is always bad and a higher one always good. You need to get outside of the “Market Value vs. Anything” box if you hope to achieve your goals. Cycles rarely fit the January to December mold, and are only visible in rear view mirrors anyway… but their impact on your new Line Dance is totally your tune to name.

The Market Value Line is a valuable tool. If it rises above working capital, you are missing profit opportunities. If it falls, start looking for buying opportunities. If Base Income falls, so has: (1) the quality of your holdings, or (2) you have changed your asset allocation for some (possibly inappropriate) reason, etc. So Virginia, it really is OK if your Market Value falls in a weak stock market or in the face of higher interest rates. The important thing is to understand why it happened. If it’s a surprise, then you don't really understand what is in your portfolio. You will also have to find a better way to gauge what is going on in the market. Neither the CNBC "talking heads" nor the "popular averages" are the answer. The best method of all is to track "Market Stats", i.e. Breadth Statistics, New Highs and New Lows. . If you need a "drug", this is a better one than the ones you've grown up with.

Change is good!

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Investments and How to Find Them

There are risks involved in all investing. The skill of investing is knowing which risks are worth taking, and which should be avoided. Finding and knowing which risks to take is the essence of good investing and the whole reason that investments can pay such a high reward. It cannot be done without careful research and analysis. You must give yourself every chance to make the right decision. Investing without carrying out sufficient research is like playing roulette. You are giving yourself virtually no chance of covering your investments and avoiding disaster.

There are certain steps you will have to take in order to give yourself a fighting chance of being a successful investor. If you are considering investing in company shares on the stock market, then you should be aware that all publicly traded companies must provide investors and potential investors with access to company financial data. This data is generally available from the company so if you are considering buying into a company, then get access to this information and satisfy yourself that the company is in a good financial state before parting with any money.

Be Aware

If you do research a company, and are taking a look at its financial position, then you should look back two to three years into the past. You probably don’t need to go back further than this but if you go back less, there may be important trends in the finances that you will miss. Take special note of the quarterly statements and the revenue and earnings per share.

You should be trying to identify trends in certain figures. While these are no guarantee of what might happen In the future it is undeniable that an upward trend in revenue and profits will be a positive sign to look out for.

Once you have satisfied yourself with the basic financials of the company and that the prospects of making good profits into the future are favourable you will be in a position to consider putting money into the share. There is an ongoing debate over whether it’s preferable to buy shares that will increase in value, or shares that pay good dividends and the answer to this question must always lie with the individual investor. What must be remembered however is that there is little point in chasing dividends. This refers to the practice of buying a share just before a dividend is expected to be announced. The price of the share will already have taken the dividend into account so you will be paying for it in any case.

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Creating Wealth In Stock Market

The 12 Rules of How to Avoid Losing and Start Making Money from the Stock Market

RULE 1: WHY DO YOU INVEST?

Make more money, this is the answer to most people.
If your reason is to make more money, then ask yourself these three questions:

1.Is your strategy making money?
2.Is your strategy safe?
3.How to increase the profit and minimize the risk?

RULE 2: HOW TO CREATE WEALTH IN STOCK MARKET WITH JUST $1,000

Let say we invest some lower price stocks with just $1,000 in the stock market, invest twice a year for short-to-medium term. If each time the return is double, you will make one million dollar cash within 5 years. If your starting capital is $20,000, after 3 years you will make one million dollar cash.

If you are using the same $1,000 capital, invest twice a year, but the return is only 50%, you will make one million dollar cash after 9 years.

So we can always start small. However, it is very important that we know how to select high profit and low risk stocks.

RULE 3: DON'T GET OBSESSED WITH STOCKS

Sitting and monitoring the market whole day long will not bring you profit. Instead, it increases pressure and misleads your judgment.

RULE 4: NEVER GAMBLE

95% of the people always buy at the highest price. They don’t really know when to buy, just relying on news, rumors and tips. Only 5% of the people knows how to trade at the lowest price. That’s why 95% are losing money, only the 5% are making money.
Investment Builds Wealth, Gambling Definitely Lose !

RULE 5: SAY GOODBYE TO NEWS

News used to be able to predict the market trend. But not anymore, it is difficult to judge which news could actually influence the market nowadays.

RULE 6: DO YOUR OWN ANALYSIS, FORGET ABOUT TIPS

Before investing, ask yourself these four questions:

1.How many people have already heard about the tips before you?
If many have heard about it before you, this news is already obsolete. The price is already high.

2.How long have the tips been spreading before it reaches you?
The next day?

3.Who told you?
Listed company director? Or friends?

4.Assuming that the tip is true, would you possibly know about it?
Normally insider news is not disclosed.

RULE 7: SELL YOUR STOCKS EVEN LOSING MONEY

It is easier to be said than done.

Sell at a loss is a difficult decision. Your heart will object, and your feeling will say "It is going to rebound, don't sell." Eventually price dropped further, causing a much tragic lost.

RULE 8: DON'T JUST FOCUS ON MAKING MONEY

How to protect your capital is much more important. Don’t try to make 100% profit. It is already good enough to have a 60% profit margin.

RULE 9: HISTORY WILL NOT ALWAYS REPEAT

Everyone expects to make some money from the stock market before Christmas, New Year, annual budget announcement or election, but the stock market is not always bullish during these events. We can say history is not always repeated.
The best way is “Let the Market Lead us”.

RULE 10: QUOTES FROM WARREN BUFFET

There are only two rules to make money in stock market:

The first rule: Never lose your money.
The second rule: Never forget the first rule.

RULE 11: TURN BAD STOCKS INTO GOOD STOCKS, DON’T JUST HOLD YOUR STOCKS

Don’t hold your stock too long, there is a value when stocks are sold.

How long have you been holding your stocks until now?
Since Year 1993? 1997? Or Year 2000?

Why didn't you exercise your stocks? Long term investment strategy is not practical anymore. Even the blue chips also crash when the market collapses.

The best strategy is to sell the stocks that are not earning money, and reselect some good counters. Buy low, sell high for several times will earn you more than enough to compensate the lost.

RULE 12: WAKE UP FROM MISTAKES

Stop investing if you are not sure of when to buy or sell.

Without the knowledge of investment, you are bound to lose again. This is an age of information. Investors are using knowledge, techniques and strategies to make money. Without investment knowledge, how do you protect your money?

Building wealth through investing starts with securing your capital.

Author: Dr. Steven Lee (Ph.D) is the creator of “Power System” and also the author of two books on how to invest in stock market. There is "Creating Wealth in Stock Market" and "The Magic Idea of Getting Rich". Free e-book "Money Fish"
Your New Way to Become a Millionaire
Website: http://www.DrStevenLee.com

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