"A little knowledge that acts is worth infinitely more than much knowledge that is idle." ~ Kahlil Gibran
When it comes to investing, the first rule thing you need to learn is effective management of your emotions. It is impossible to eliminate the impulse to act when euphoria or panic are in the air. While you cannot eliminate the emotion that pushes to you react, you can control your reaction. You can choose to run with the herd of fight panic and stand aside while the herd stampedes. The most important rule is to never let your emotions do the talking. This means not succumbing to panic or euphoria. If you fail here, then nothing can help you. All the rules in the world will fail to alter your outcome.
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Management of your emotions: Panic and euphoria are useless when it comes to trading. Control them or be controlled by them.
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Patience and discipline: these are two of the most important traits that you need to master, after the above rule. You cannot win in the markets if you are in a rush and lack discipline. You need to wait for the crowd to panic, before deploying large chunks of our money into stocks. If you decide to short the markets, do not oppose the masses just because they have jumped on the bandwagon. One must wait until the bandwagon is overloaded and threatens to buckle under its weight before you head for the exits and plan on taking a position that opposes that of the masses.
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All forms of popular media should be avoided. In other words, if you are going to these places for investment advice you are probably not going to fare well in the long run. Use popular media to get a gauge on what the masses are doing.
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Come up with a strategy before you start playing with real money. Don't attempt to score a home run; your only reward will be loss and misery. The plan should include profit targets on each and every trade, and, an exit plan, in case the trade does not work out.
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Technical analysis is very important in our opinion. All traders should have a firm understanding of the basic concepts of this field. Try to understand how to 2-3 technical indicators work. Doing so will greatly improve your odds of succeeding
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Study and understand the markets you are going to trade in. We have put up an extensive list of resources, all of which are free here. Free Trading Resources
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The law of balancing comes into play here. When you win a significant amount of money, help one person in your lifetime and your rewards will be 100 fold.
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Options are a no-no. Under no circumstances, you should trade options until you have a firm grasp of the buying and selling stocks. Once you have locked in some profit, you can use some of this money to trade options if you still have the desire to do so.
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Learn to relax. A stressed mind is no good to you. A diseased body is a body not at ease, so if you are not at ease, you will perform miserably in the markets.
Final words
A true contrarian never opens a position unless blood is freely flowing on the streets or the investment in question is despised or being ignored by the masses. Buy when the crowd is paralyzed with terror and panic and sell when the masses are jubilantly buying. When you are feeling ecstatic, flee for the exits.
Don't be too confident as this is usually arrogance disguising itself as confidence. The stock market takes no prisoners Stops are an important part of trading; they help you minimize your losses. Never open a position without determining upfront how much you are prepared to lose.
Investing is all about emotions and overcoming them. Do not align yourself with the crowd for they are notorious for being on the wrong side of the equation.
"How do you know so much about everything?" was asked of a very wise and intelligent man; and the answer was "By never being afraid or ashamed to ask questions as to anything of which I was ignorant." ~ John Abbott
