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3 Stock Market Tips

Updated on March 14, 2008
Bulls and Bears of the Stock Market
Bulls and Bears of the Stock Market

Investing in the Stock Market

Investing can be a wise decision if it is done with careful research and planning. However, investing in the stock market is not a guaranteed path to riches. There are many stock market gurus with investing methods, stock market software, and websites with stock market advice.

Some of these resources are very helpful. And some can cause you to lose lots of money. Out of everything I've learned over the years about investing in the stock market, these three simple rules have probably been the most important advice for me to follow.

Stock Market Basics - Let Profits Run and Cut Losses Quickly

Let your profits run and cut your losses quickly. This is a cardinal and classic rule to follow to be successful in the stock market. If you've done your research, you will have confidence in your stock starts to climb and hang onto it. If it turns out your research was flawed or an unexpected event causes your stock to drop, get rid of it.

Oddly enough, most people do the exact opposite. As soon as they see a profit in their portfolio, they are ready to dump the stock so that they don't lose their profit. When a stock has lost money, people will tend to hold onto it and hope it bounces back. These are some of the best ways to lose money in the stock market.

Stock Market Basics - Emotions Have No Place in the Stock Market

Keep emotions out of investing in the stock market. Being emotional will trip you up when making investment decisions quicker than anything else. Greed, hope, panic, and fear create the most problems when making investing decisions.

You have to have a system in mind, with decisions mapped out before you ever buy a stock. These decisions should cover when to buy a stock and when to sell a stock. Fail to plan, and plan to fail is a suitable motto for stock market investing.

No Penny Stocks

Avoid OTC, or penny, stocks. These stocks have no logic in their movements. Penny stocks are very susceptible to scams as well. One of these scams is called pump and dump. This is when an organized group buys large shares of a stock. Then they get the word out about this up and coming stock star. The stock has a huge rally. As the group sells off their shares, the stock then drops right back down.

Here's hoping for a Bull market
Here's hoping for a Bull market

Not as Simple as It Seems

Following the above advice sounds easy; it's not. Following these three rules alone doesn't guarantee that you won't lose money in the stock market. But if you follow these investing rules religiously, they can significantly increase the amount of money that you keep in your pockets.

3 Stock Market Tips Comments

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    • ZipClip profile image

      ZipClip 9 years ago

      These are some good tips. I just got my first job out of college and am looking to invest some of the money. I am going to do some serious research before I put my money in the market.

    • Angela Harris profile image
      Author

      Angela Harris 10 years ago from Around the USA

      Ralph- good, valid points. However, if people follow the above advice about investing in the stock market, especially about controlling emotions, several of the problems associated with stocks are reduced.

      And let's face it, people are going to invest in stocks regardless. Better they have some sound advice that has proven invaluable to me in the stock market. And I do invest actively, and I do make money.

    • Ralph Deeds profile image

      Ralph Deeds 10 years ago from Birmingham, Michigan

      Your advice is okay. However, IMHO mutual funds are a better way of investing for most ordinary folks. Buying individual stocks is a loser's game for investors which, like casinos, is designed to make money for the banks and brokerage houses. The transaction costs and taxes are too high, and most people don't have enough money to invest to provide them sufficient diversification to minimize their risk when buying individual stocks.

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