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Better Trades and 3 Lessons You Learn

By: Loredana Sargu

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LESSON 1. AVOID THE COMMON THIEF

I have noticed that some people display a common error in judgment that can be devastating. It's kind of like letting a thief into your home and saying, "please turn out the lights when you leave." The next morning you wake up and the house is empty, the safe is open, and all your deeds are missing. A few days later you get a call from your pension plan coordinator who bears heart-wrenching news "there is nothing left in you account, do you still plan on using our services?"

What is this thief? What could people do that would cause them to lose nearly everything before they wake up? The answer is: Many people will start out slow and each time they make a mistake they try to solve it with larger amounts of cash. Over time they can drain their bank accounts, brokerage accounts, pension funds, and every other source of money. Only then do they stop and say, "Oops, I guess my trading methods are not working."

Do you mind if I make a suggestion? When you decide to invest in the stock market, it's best to use only a portion of your money for "High Risk Investments." What is a high-risk investment? Anything that you personally control that can lose value if you make a mistake! Let's say you have $30,000 of available funds, don't dive right in with the whole thing, how about starting out with 10%. That means you would start with $3,000. Then you ask yourself a few questions:

"Is it OK if I place this money at risk?"
"Can I handle the possibility that I may lose this entire amount?"
"Can I accept that risk without losing my mind and self?"

If you can answer each question with a YES, it is indeed risk money that you will be able to use and you will be able to handle the ups and downs of the market. If the money is too important, you will end up making all the wrong decisions because your choices will be made because of fear and worry, not logic and informed choices.

Once you have arrived at the amount you want to work with, use that for a while. Then, as you experience positive results, you might reconsider. You could add a little, if it fits your plan. However, if you are having a difficult time and you feel like you need more money to help you "make up" your losses. STOP. Don't add another penny. I have seen so many people who are still confused about things; use hard earned cash to experiment in the market. When they have a few bad plays, they go back to their secure funds and get another cash infusion. They continue doing this until they have nearly exhausted everything. Then they finally decide that they need to go back to the basics and find out what's wrong.

The common thief is thinking that you can solve investment problems by throwing more cash into the system. There is nothing wrong with starting out small and working with that money until it becomes a massive amount.

Don't get me wrong; I am not trying to say that most people lose money when they start investing in the market. That's not realistic, I know people that have done great and others that have not done great. I have spent many years teaching people how to invest in the market. That exposure has given me the opportunity to talk with all kinds of people with just as many different experiences in the market.

I realize that using the concepts presented in this series of reports works best when you have a little more than $2,000, but not too much more. I have worked with tons of people that started out investing in the market with $2,000 or less which grew to hundreds of thousands of dollars.

How do you avoid the common thief? Be careful and go back to the basics if things are not working.

LESSON 2. IF YOU'RE WRONG, EXIT QUICK AT A SMALL LOSS

One of my favorite stock market instructors is Ryan Litchfield*. Ryan says something like this "IF YOU NEED TO EAT A TOAD, EAT IT FAST BEFORE IT GETS TOO BIG". The same applies to investing in the market - if a play is going bad or if you discover that your investment choice is wrong, get out ASAP. When a play goes bad take your loss immediately before you're small error becomes a big disaster.

Let's say a stock has reached it's resistance and has started falling, you decide to short some stock or sell a call with plans to buy back at a profit when the stock falls far enough. To your dismay, the stock stops moving down shortly after you get filled on your sell order and then that stock starts moving like a rocket - IN THE WRONG DIRECTION costing you money. By the end of the day, the stock price has broken up through resistance. That night when you look at the charts, check the news you realize that the stock may continue to go up a lot, make the decision to get out fast. When the market opens the next day, wait a short while (at least until amateur hour is over) then if the stock has not moved back in the right direction - call your broker and close the play!

The problem is people depend on hope too long. The stock shoots in the wrong direction and they keep holding on, hoping and praying for a miracle, until the play gets way out of control and it becomes a substantial loss potential. If you stay in a losing play too long, you will end up riding that nightmare all the way to the poor farm.

If a play moves against you, get out while the cost is small. There is nothing wrong with taking a small loss by closing the play. It is impossible to be 100% correct, all of the time. The stock market has it's own mind and it will act the way it wants, regardless of our desires. Rather than looking at losses as a bad thing, think them as the cost of doing business. For example:

A grocer orders 5,000 boxes of cereal because a major kids fair is coming to town. The fair is canceled and the grocer is left holding far more cereal than she can handle. She gets out a big sign that says: "Cereal 50% off, while supplies last, hurry in for the big savings."

Will that grocer spend the next three days crying over the cereal disaster? Nope, it's never going to enter her mind, she will just look at it as a cost of doing business. She knows that it is far better to sell the cereal at a small loss, so she can use her money and shelf space for the production of income. If she were to hang on to the cereal, refusing to sell at a loss. She could end up losing customers because they are getting old, spoiled products. Not to mention, she can't buy other supplies because she has too much money into the cereal. Eventually she could be faced with an even bigger loss when she has to dispose of spoiled products that no one wants to buy.

There is nothing wrong with selling groceries at a loss, if that is what it takes to move the product, providing it does not happen too many times. Even if you take a loss, it is better get out. Just like the grocer, you still have your capital left for other products (plays), which will bring you profits in the future. And you can always make a profit by getting back into the stock as it provides you with another window of opportunity. If you get out of a play because a stock moves the wrong way you will be happy that you got out early when you see that it kept moving the wrong way. Sure you had to get out at a loss but you rescued some of your money. You can take that rescued cash and do other plays without having to watch a loser play get worse day after day. Believe me - that's no fun!

Everyone has a few bad plays, mixed in with their good plays. If you win seven out of ten times, you will be ahead of the game at the end of the month. If you are sure to keep the losses small, your account will go up 7 down 3 up 7 down 3 up 7 down 3. If you are not having enough successful plays, it's time to stop, go back to the basics, go back to class, do more practice trades, and get back on track.

LESSON 3. EVERYONE PAYS FOR EDUCATION

In life education always costs us something. We can learn by attending the school of hard knocks or getting a formal education. Either way we will invest time, money, and energy. The stock market is no different than any other profession or opportunity if you want to make a profit you have to learn how. There are no short cuts or easy tricks, if it was easy then everyone would be millionaires. I have seen people lose $10,000, $20,000, $50,000 and even more before they finally get the message - you have to know the rules before you play the stock market game.

I teach many online free stock classes each week. These classes are intended to be introductions to stock market investment concepts. You can get enhanced education by attending one of my live classes. I have scheduled a few two day classes in April. Please look in this newsletter for the dates. I invite you to come spend two days with me. I promise to share two information packed days with you and other serious investors. Many students tell me that if they could start over again, they would have attended my live class when they were first invited, instead of "wasting months wandering in the dark guessing."

When you attend my live workshop you will learn in two days what has taken me many years to discover. I am constantly updating the subject material and improving the tools so that I can be sure to teach you everything I can in two action packed days. Come join me, it's going to be an exhilarating experience.

Darlene Nelson with Better Trades

Article Source: http://depositarticles.com/

Content Source: Stock Option Trading for Better Trades for their Better Trades Calendar Spreads

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