Stock Market Investing Basics:

3 Must-Knows

 

Investing basics are rules and concepts that work regardless of stock market conditions.  Applying these investing basics to your stock market investment could mean substantially higher profit potential.

Stock Market Investing Basics #1:  Trailing Stops:

The use of trailing stops in your investing is probably the most important stock market investing basics.  This technique will avoid any catastrophic loss to your investment in the stock market.

A trailing stop is a mental selling price that moves with the current stock price. 

Example: 15% trailing stop on stock A purchased at $10

Scenario 1: If stock A falls to $8.5, then you sell.

Scenario 2: If stock A moves up to $12, then your trailing stop is moved up to $10.20. 

Actual Scenario: A little while ago, Global Alert subscribers entered into McLeodUSA, Inc. at $0.56. As its stock price increases, the trailing stop keeps moving up at 20% lower than the highest price during our position.

Since the highest closing price for McLeodUSA occurred at $1.76 on July 15th, 2003. Our trailing stop ever since July 15th, 2003 had been $1.41. When McLeodUSA, Inc. fell and hit $1.41, our stop-loss order triggered and automatically sold the position at market.

 

Stock Market Investing Basics #2:  Asset Allocation:

This stock market investing basic involves spreading your investment over many different types of investment vehicles. 

We recommend 25% stock market, 25% active investment, 25% bonds, and 25% real estate (preferably your own residence).  These percentages should be adjusted according to your own expertise. 

For example, if you are a successful businessperson, then you might want increase your active investment portion to be higher than 25%.

Stock Market Investing Basics #3:  10% Rule:

This rule allows no more than 10 percent of a stock portfolio to be invested in a particular position or company.  It is preferred that you use a even lower percentage if it is possible.  Riskier positions like stock options should be have a even lower allocation. 

This investing basic protects your portfolio from catastrophic losses in a few of your positions.

You only need these 3 investing basics to succeed in the stock market. 

However, most people never use them despite their belief in these 3 rules.

Emotions ... avoid us from taking right actions -- so you have heard, too.

 

 

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Profit with Stock Market Investing Basics