I’ve put together what I think are the eight basics of stock market investing. From my research if you follow these steps, you’ll increase your chances of being a successful stock market investor. Investing in the stock market does require daily study and if you are to get good at it, you’ll need to work at it. There is no free lunch. I have already talked about a few of these things so some won’t come as a surprise. First, if you are a beginner, I recommend that you get a foundation of investing by reading The Neatest Little Guide to Stock Market Investing. That should give you a good handle on the basic terms you’ll need to know as you go along.
The first thing you need to do is to pick a strategy. You can find a few of the masters in the book above. After that, if you don’t have a strategy, I suggest that you adopt the CANSLIM strategy as your own. You can read more about it in my article called The Only Stock Market Investing Book You Should Ever Read. It’s important that you pick and master one specific strategy. What’s important is that it is one of the stock market investing strategies of the masters, you are good to go. Remember you won’t learn anything if you don’t read specific techniques. So stock market investing for dummies material is not the way to go.
- The next thing you want to do is set up stock screens that bring the stocks you need to review to your attention. You do this by setting up stock screens to uncover stocks that might have strong earnings, strong price moves, surges in volume. It all depends on your strategy. I like to look for stocks that are up on higher volume. So I have a screen set up for that.
- Once you’ve done that, you need to move the stocks that appear on your screens over to your watch list. That way you can keep an eye on the performance of the stock. More importantly though, you want to make sure that you buy the stocks at the right time.
- That’s where picking entry points come in. Also called a “set up”, you’ll want to enter stocks at times that most likely predict they will go higher. For canslim, that’s when they break out of a base on strong volume. Whatever your strategy, learning to pick the proper buy point is key to a successful stock.
- Next you need to have an exit strategy. What will you do if the price goes down. What will you do if the stock goes up. Having price targets is important so you know when to take your gains. Having limits to how far you will ride a stock down in price will help you protect your investment capital. Setting stops is as important as setting profit targets.
- After that, you’ll want to use a stock simulator to work on your technique. The best professionals in the world practice in the gym or in simulators (think pilots). You should to.
- Review your practice trades and shoot for a specific batting average. Try and get 1 out of 3 right of your stock buys as winning stocks. Learn from your mistakes and keep shooting for a better batting average.
- Once you’ve reached your batting average, start using real cash and work on duplicating the results you had when you were practicing. The real stock market works different than a simulator. You’ll find out that emotion comes into play. You’ll need to get a handle on that.
So there you have it. These are my eight stock market investing basics. Get to work and let me know how you do!