Learn How to Profit From Trading Stocks
By Dale Gillham | Published 29 January 2019
When it comes to learning how to profit from trading stocks, it is important that you understand who you are and how you approach your trading, as this will enable you to manage yourself and your trading rules much better, so you consistently profit. But herein lies the issue as to why most are not profitable. Let me explain.
Learning how to profit from stock trading
A few years back I launched an inexpensive 11 lesson course called Trading Mentor, which was designed to introduce people to some simple but powerful strategies that would enable them to learn how to profit from trading on a consistent basis. The reason for this was because a number of people who were contacting us simply wanted to learn how to buy and sell.
In their mind, they were thinking if they learnt some rules that allowed them to just buy and sell, that this would teach them how to win more than they lose. While on the surface this sounds logical, no rule works all of the time in all markets. Instead, different rules are used for different markets, and there is so much more that needs to be considered when buying and selling than just the rules alone, which is why I wrote the Trading Mentor Course.
When talking to these people I found that the majority were not achieving their goals because they had been influenced by many market myths, in that they had a false or misleading view as to what trading is, the best way to become a trader and/or what they needed to know in order to become profitable.
Interestingly, quite a few said they were traders, while others had been dabbling in the market for several years and most, if not all, had read books, completed one or more weekend courses or scoured the web looking for the “holy grail”, and yet they had still not learnt the strategies that would allow them to become profitable on a consistent basis.
In fact, a common question that is asked by those new to the market is: “can you tell me what the best share trading strategy is to use?” When someone asks this question, it tells me that they are not really a trader just yet because if they were, they would already know how to implement their own strategies that would deliver the results they are seeking.
It also tells me that they haven’t gained sufficient knowledge to learn how to profit from trading stocks or they haven’t put in the effort to develop the skills to be able to work this out.
But irrespective of whether you are new to trading, looking at getting into trading, or have been trading for some time, let me share with you seven strategies that are invaluable to you if you truly want to learn how to profit from trading stocks on a consistent basis.
1) Successful trading is not about how much money you make
No doubt, if you are a regular on my YouTube channel or you have read a number of my trading and investing articles, you will have heard me say that trading the stock market successfully is not about how much money you make on any one trade, it is about how much you do not lose overtime. In other words, it is about minimizing risk, not maximizing profits and the most efficient way to manage your investment risk in the stock market is to set a stop loss.
A stop loss is simply a price point where you want to sell to preserve capital if a recently entered trade turns against you or to protect the profits of a winning trade. Unfortunately, most traders either don’t use stop losses or do not know how to set them properly and, therefore, get stopped out too much. Many are also poor at actually exiting trades even when a stop is triggered and, as such, are largely unprofitable, over time.
So my #1 Rule is to always protect your downside risk.
2) The amount of profit you make is directly related to your level of knowledge and skill
Let me ask you, if you were about to have brain surgery would you prefer an intern or a highly skilled surgeon with ten or more years’ experience?
I often ask people, who tell me they are traders, if they would give all of their money to someone with their level of knowledge and skill to trade and the answer, is always a resounding no. Yet the majority don’t see. until it’s too late. that their success in profiting from trading is directly correlated to their level of knowledge and skill.
Most would agree that developing any new skill or technique in life is something that is developed over time. And learning to trade is no different. Just having knowledge about a technique is not enough because there is a vast difference between knowledge and understanding.
Knowing what a trend is does not mean you can make money from it. But understanding how to make money from it and developing the skill to do so is the most important.
Sadly, most traders do not put in enough time and or effort to achieve this. Many falsely believe that because they have learnt a technique in a book that they will instantly be profitable, yet this is so far from the truth. To be successful you need to test the technique and more importantly, your ability to use it properly so as to build skill in applying it correctly in the right situations.
So Rule #2 is to put in the effort by gaining the knowledge, skill and experience and I guarantee you will succeed.
3) Only trade in markets you are qualified to trade
There is an old saying that you get what you pay for, which definitely rings true in the stocks market. Another is that your education will cost you one way or another.
All too often I find those starting out wanting to trade Forex, options and Contracts for Difference (CFDs) because they mistakenly believe they can make more money quickly with less capital. And while this is true for experienced traders, it is the opposite for the inexperienced as they don’t have required the knowledge or expertise to trade these highly leveraged markets successfully.
The key to profiting from trading stocks is to take a slow and steady approach, and to build your knowledge and skill over time so that you are in the market long enough to gain the experience needed to ensure your longevity. Would it surprise you to learn that the life expectancy of a trader attempting to trade these highly leveraged markets can be measured in weeks and months, not years?
Think about it - would you get into a plane where the pilot has only read a book on flying? Unlikely, because the risk would be too high! Well the same applies when trading highly leveraged markets. It requires you to have a high level of knowledge, skill and experience but it does explain why most traders fail.
So Rule #3 is to always follow Rule #2.
4) Don’t over use leverage
There are two emotional vehicles that drive the stock market, fear and greed. Greed dominates the emotional landscape of traders when times are good, while fear dominates when times are bad. In a rising market many people leverage to the hilt, trading just about anything that moves, with the rising market generally hiding their mistakes. However, just as leverage can significantly increase returns, losses are also magnified, particularly in a falling market.
Unfortunately, those new to the market are often enticed by fancy marketing gimmicks and the potentially high returns that can be gained from trading Forex, CFDs, options, warrants and futures; yet most fail to make anything.
This is because the streets become littered with wanna-be traders who have lost their capital and sometimes more through the over use of leverage, poor skills and fear. Given this, as a general rule of thumb, if you cannot profitably trade blue chip shares on a consistent basis, do not attempt to trade other instruments or use leveraging to trade shares because the results can be devastating.
So Rule #4 is to always leave a safety margin when trading leveraged markets in case things go wrong, which means to avoid using all of your available funds.
We have all heard the saying “don’t put all your eggs in one basket” and there is good reason for this – simply because if you place all of your money in a trade and that trade goes bad you stand to lose all your money, and yes, I have seen many traders do exactly that.
So it makes sense to diversify your money, but how do you do that?
Rule #5 is to always have 90 percent of your capital in a medium to long term portfolio of high quality stocks and only ever use 10 percent to invest in highly leveraged markets, which I outlined in detail in my four golden rules to investing in shares.
With the 90 percent invested in a medium to long term portfolio, hold between 5 and 12 stocks and always be prepared to go to cash if the market warrants. Of the 10 percent invested in highly leveraged markets, never hold more than 4 positions at any one time so as to minimize your risk and only ever invest 80 percent of your available capital, leaving the remaining 20 per cent in the event of a margin call.
6) Have a solid plan
Did you know that the logical part of your brain is much smaller than the emotional side? But if you want to make smart decisions about your money, you need the logical side to dominate. Yet the opposite is normally the case once a hint of fear or greed sets in, which is why we see otherwise intelligent people chase “get rich quick” fantasies or hang onto stocks that have lost significant value.
We have seen many times in recent history what the onset of fear and greed can do to individual stocks and financial markets the world over. But there is a way to avoid getting caught on the wrong side of this, and that is to have a solid trading plan in place as to how you will manage yourself and your investments so that you minimize any potential down side both financially and emotionally.
So Rule #6 is once you have a plan, stick to it!
7) Know your WHY and set goals
Success will happen when you apply the first six strategies; however, long term success requires you to also spend some time on self-exploration. And this involves knowing your WHY, or at least one thing that is driving you to want to trade successfully.
For most people, this will be about family, lifestyle or a personal challenge. Now you may be thinking that you have heard this all before, however, if that is the case and you still haven’t applied yourself to the task, then my message has probably come to you at the right time.
Remember, that really successful people set goals, as this not only allows them the freedom to focus on what they want, but more importantly, in the process of setting these goals they really come to connect with their WHY, which creates a powerful motivating force to achieve their goals.
So Rule #7 is to follow all of the rules above because I guarantee if you incorporate these seven strategies into your overall approach to learning how to profit from the stock market, you will dramatically increase your chances of success. And if you are serious about learning strategies that will enable you to profitably trade the market on a consistent basis, I encourage you to enrol in my Trading Mentor Course.
Now let’s get into this week’s stocks. Watch the video to find out more.
Others who read this also enjoyed reading:
Back to Investing & Wealth Creation