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The stock market is like any other game; you have to know how to play in order to win.
Learn all the rules, such as placing limit orders, stops, good-till-cancelled orders etc. Does your firm accept 'stops' on OTC stocks? Some do. Find out everything you can about the ground rules as well.
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Just like in other games , you are allowed to win when other investors lose.
Buying stocks is one way to profit, but there are losers in even the best bull markets. Short selling - selling stocks you don't own - is a way to make money in a falling market and can ramp your profits considerably. In fact, playing both sides at the same time affords what is known as a 'market neutral' or 'hedged' stance. Theoretically, a market neutral or hedged stance means less overall risk.
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Stop playing the game if you are losing!
Know your pain threshold and don't linger in a bad position, especially one that is moving rapidly against you. It may get worse. Much worse . Never freeze like a deer caught in car headlights in the middle of the road. When in doubt, exit the position.
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Sometimes, ignore rule #3 - particularly when your gut feeling is that you will be vindicated in the end.
In these cases, if you cannot run the risk of being 100% wrong on the position, then you must change the odds to 50% by exiting half the position. Then, you will only be 50% right, but you will never be 100% wrong. If the position moves in the direction you initially anticipated, you will profit. If the position moves further against you, you will lose less.
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NEVER average down!
See rules #3 and #4 above. If the position is going against you, it is probably for a very good reason (e.g. it is a stinker that you should no longer own). Why add to the punishment by increasing the size of the position? If the position moves further against you, lowering your average cost only accomplishes one thing - you lose more money!
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Don't be afraid to pyramid your winning trades.
Conversely (to rule #5), if your confidence increases, don't be afraid to pyramid your winning trades. Investors of all stripes generally have very good hunches and intuition, especially when decisions are based on fundamentals they are familiar with, like a new product. If the product proves successful, it may ensure the company's growth for longer than initially expected. If your confidence increases as a result, consider ramping up your position.
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Never risk more than 5% of your capital on any trade and always maintain a modest cash reserve to take advantage of a new situation.
If you are already extended when a good new idea pops up, extending yourself further by buying with borrowed money can only increase your overall risk if the market turns against you.
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A background in fundamentals never hurts.
If you don't read the financial journals, at least read the newspapers. If you are not up on current events, you should be.
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Your best investments may come from your own experience and common sense.
Bear in mind that listening to others ideas is not the same as your own experience or common sense! Chances are that you are at least as smart as the broker who is recommending the stock!
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Winning streaks are fun, but they all end way too soon.
When it gets too easy, pull back and trade less. That's usually when the trend changes so fast it will rip your head off. On the other hand, losing streaks can seem to go on forever. When you're on a losing streak, pull back and trade less or stop altogether for a week or two. Smell the flowers. Read a book. Call up an old friend. A fresh perspective will usually work wonders. Last but not least, remember, it's only money.
