Trading the Stock Market
Anyone who has ventured down the road to trading the stock market will eventually come across the statistic that 90% of individuals don't make money.
This statistic deems that over time 80% lose, 10% break even and only 10% make money consistently.
An interesting point about this statistic is that it is not based on geographical region, age, gender or intelligence.
Everyone aspires to be in the 10% who consistently make money, but few are willing to put in the time and effort to achieve it.
When talking to people, we often ask if they want to learn what the 10% of people who make money know, or what the other 90% know.
Of course, they always say the 10%.
From experience, we can say, that to be truly successful, you need to do what the majority of individuals who lose money don't do, which we outline below.
Our Trading Philosophy
Our trading philosophy is based on over 35 years of combined experience in the stock market and the success of the clients we have supported to achieve their goal of making consistently, profitable returns from the market.
So what is our philosophy?
Outlined below are the 11 key principles we advocate that will enable you to make money on a consistent basis.
1. Trading is about creating a lifestyle, not making it your lifestyle
Today, more than ever before, people who want to learn how to trade, state that their end goal is to 'day trade' for a living.
All too often, individuals fall prey to the myth that trading more often means they will make far more money.
In reality, the opposite is true.
The cold reality is that the survival rate of traders who attempt to 'day trade' is less than 20%.
The reason for this is that many people are taught to trade using daily charts, which is like having your face planted up against a brick wall because you are unable to see what is actually unfolding on a stock or in the market.
From experience, individuals who trade less, using weekly and monthly charts, make far more money and experience far less stress.
The fact is that you will make far more money from strategies that enable you to trade well not often.
And the benefit in learning to trade using our strategies is that you are able to confirm the profits you will make before you put your money at risk!
2. When it comes to trading the stock market, there is a vast difference between knowledge and understanding
The irony is that most people seek out quick fixes to achieving their financial goals with the mindset that short-term gratification will fulfil their long-term needs.
This is often spurred on by the proliferation of seminars or weekend workshops available.
Whether the strategies presented actually work for you or not is usually of no concern once a sale is made.
Indeed, from experience, all you really gain is a little bit of knowledge and very little understanding.
As our clients have told us: gaining knowledge is one thing, it is gaining the right knowledge and understanding that is critical to your long-term success in the stock market.
3. Learn to trade any market or instrument
Learning to trade is a lot like learning how to drive a car.
Once you know how to drive, you can drive any car in the world.
And so it is with the stock market; once you have learned the foundations of how to trade by consistently taking profits from the market, you can apply your knowledge to trade any instrument or market in the world, whether it be stocks, Forex, etc.
So, we encourage you not to get caught up in the myth that you need to pay more money to trade various instruments because it is highly likely you will be paying to learn 'what' the instrument is (which is freely available on the web) rather than how to trade it for profit.
4. Diversify but not too much
The reality is that investors hold far too many stocks (generally 30 or more) in their portfolio.
Over-diversifying a portfolio, however, actually exposes you to market risk, which cannot be eliminated by diversification.
Indeed, many people are beginning to question the conventional wisdom of over-diversification, preferring to invest in concentrated portfolios.
The reason for this is that you don't get twice the benefit from holding twenty stocks than you do from holding ten, and you certainly don't get ten times the benefit from holding 100 than you do from holding ten.
Unfortunately, many advisers and brokers continue to reinforce the belief that diversification across a large number of stocks in different sectors will automatically increase returns.
In our experience, the only people gaining from this advice are the ones giving it.
5. Cheap doesn't mean a bargain
Unfortunately, many newcomers to the stock market mistakenly believe that buying cheap is the best method for achieving higher returns.
But this belief not only costs you money, it usually hinders your ability to generate profits because you are investing your faith in speculative stocks.
In other words, you are speculating that a cheap stock will perform better than a solid blue chip stock.
The reality is that when traders and investors buy cheap stocks trying to get a good buy they usually end up saying goodbye to their money.
6. Don't follow the herd
Commonly, investors will follow the herd to avoid the possibility of feeling remorse in the event that their decisions prove to be incorrect.
Herding also reduces the time required to properly analyse an investment decision on the basis of the belief that if everyone else is buying, someone else must have already done the required analysis.
The reality is that many investors would rather purchase a stock that others are also buying in order to seek comfort in the knowledge that they are not alone in their decision making.
It also enables investors to rationalise a stock that starts to go down; since everyone else thought so highly of it, it makes sense that they did too.
Sadly, following the herd and being emotional just does not cut it when your goal is to make money.
That's because, your number one goal when trading the stock market is to minimise risk so as to protect your capital.
7. Protect your capital
A common misconception held by many who trade the stock market is that they only need to be armed with the knowledge of how to pick the best trades.
But this ignores the importance of knowing when to exit.
In the event that you are wrong and the share price moves against you, it is imperative that you apply a stop loss before entering a trade.
A stop loss is simply a price point where you sell a stock to preserve capital if the trade turns against you.
In reality, successfully trading the stock market is about cutting your losses short and letting your profits run.
Therefore, the better you get at selling, the more money you will make.
8. When trading the stock market, you need to select an appropriate timeframe that suits your lifestyle
Do you want to trade over the short, medium, or long term?
If you lead a busy lifestyle, we recommend that you select medium to long term as your investment timeframe.
To many, who lead busy lives, attempt to trade short term, which is very risky if you do not have the required time.
You don't need to trade frequently to be profitable.
Trading is about figuring out what works best for you so that you ensure you are trading for a lifestyle not making it your lifestyle.
9. Invest time researching your options
Irrespective of the amount you have to invest or the instrument you are trading, you should always spend the same amount of time researching your options to ensure you are protecting your capital on each and every occasion.
Unfortunately, the amount we invest tends to change our perception of the risk we are taking and the research required to manage that risk.
Usually, this is because it is much easier to swallow, say, a $1,000 mistake than if you make a mistake with $50,000.
But the process you take to invest $50,000 or $1,000 should be exactly the same because they both represent the same amount of risk.
10. Never invest more than 20% of your total portfolio in any one stock
If you invest in the stock market, you need to accept that some stocks will fall in value.
However, this rule will help reduce your exposure to risk, while allowing you to achieve good returns simply because you are minimising the amount of capital you could lose at any one time.
11. Trading short term for cash flow
You should only ever invest 10% of your available capital in trading short-term highly leveraged markets and allocate the remaining 90% to trading a medium to long-term portfolio.
This is a very solid money management rule that allows you to take a low risk approach with your money while still achieving good returns on your capital.
The goal with this rule is to have the 10% allocated to trading short-term highly leveraged markets achieve equal or better returns when compared to the 90%.
Accelerate Your Wealth – It's Your Money, Your Choice!
So there you have it.
While the above outlines our top 11 principles, there are many more that we share in Dale Gillham's latest book, Accelerate Your Wealth.
Alternatively, you may want to review the trading courses we offer.
And if you would like to learn more about how the strategies we teach have helped our clients achieve their goal of profitably trading the stock market on a consistent basis, we encourage you to review their success stories.