Ten Tips On How Not To Lose Money On The Stock Market

I’ve been playing the stock market game for many years and along the way I have made thousands of dollars. Unfortunately, I have also lost thousands of dollars. Truth be told I am still thousands in the red, but, I am clawing my way back and I plan to be back in the black sometime soon. I would be there a lot sooner if it wasn’t for the latest Greek economic travesty which will be making that a longer journey than I had hoped.

If you’re an experienced share broker then this post will be of no value to you. If on the other hand you’re a newbie who wants to learn the stock market as another way to earn income then you will find some value in what follows. As in all businesses, and mark my words, investing in shares is a business and not a hobby, you will want to ensure that with every transaction you have one goal in mind and that is to turn a profit. This means that you need to ask yourself whether your investment, trade or software will make or lose you money before taking action.

What this post does not claim to do is to give you all the ins and outs of share trading or trading the current stock market. You would need a book or two to do that, but I will be linking to a few very good ones as resources from within the post. It is meant to be stock market for beginners and what it will do, is to highlight some of the mistakes I’ve made while stock market investing. Let me tell you, not repeating the same mistakes that I and countless of others have made while trying to learn how the stock market works can potentially save you literally thousands of dollars. Heck, there may be some tips that will probably help you to make some dollars as well.  :thumbup_ee:

[ppw id=”6623071″ description=”the trading tips” price=”1.00″]



Tip #1: Paper Trading, Your First Step

Paper trading is something I should have done but didn’t. If I had utilised paper trading to learn how to play the stock market before going in live I’m sure I would be thousands of dollars better off. If you’re new to the stock market and plan on trading shares on a regular basis then I strongly urge you to this article on How To Paper Trade!

Tip #2: Investing In Stock Trading Software

My first mistake was paying for a market analysis software called Trade Tech Market Analyser 2000! This software was supposed to provide  automatic buy and sell signals that enabled the user to buy shares at the lows so they could sell it at the highs thereby maximising their profits. This piece of software set me back $10,000 because I was stupid enough to fall for the hype at the so called free seminar.

Take my advice, if anyone tries to sell you something that they claim will predict the highs and lows then learn from my mistake and stay away from it. Just so you know the company that sold me that no longer exists making the software useless, but I’ve kept it just to remind me not to be so bloody stupid next time someone promises me something that sounds too good to be true.

Tip #3: Don’t Let Greed Take Control

The stock market today hasn’t changed, people are losing just as much money today as they did in years gone by simply because they led greed cloud their judgement when making a decision to either buy or sell stocks. I’ve lost count of the times I’ve not maximised my profits because I’ve let greed get in the way of what could have been a profitable trade. You’re being greedy when you think you can predict the ultimate high or low of any given stock.

Let me give you an example of how greed can cost you money. Lets say you bought 1000 shares of a particular stock at $10 and you could have sold those shares at $12 realising a $2000 profit. Instead you decide to hang on to it for another day thinking that you could make a little bit extra. Unfortunately for you the share dropped over a dollar when it next opened reducing your profit by over 50%! Had you sold the share you not only would have realised a profit you would have the opportunity  to enter the share market again. Heck, I’ve had stock drop so much it’s put me in the red!
Knowing when to get into the share market is something that everyone wants to know. Naturally you want to get in when the stock you’re interested in is at its lowest and sell when it’s at the highest but unfortunately that’s almost impossible to do and trying for it will cause you to miss many trades. This will ultimately result in lost opportunities. In other words don’t be overly upset if the stock goes down after purchasing it or if going up after you’ve sold it. All that counts is that you made a profit and are now ready to enter the market again for your next trade.

Tip #4: Have An Exit Strategy

This is something that I have yet to come to grips with but where its use can not only maximise profits, as in the example above, it can also minimise your losses. Lets go back to those shares that you bought at $10 which now closed at $9.60 The next day it closes at $9.30 and the day after that it was down to $8.90. What you have now is a stock that you can’t afford to sell and so you have to wait until the price goes up enough so you can sell it at a profit. Had you had an exit strategy to sell at say $9.50, you would have been able to buy in again at a much lower price thereby increasing your profits.

Because I hate selling at a loss I’ve been left holding certain shares for months on end tying up money which could have been used to make more trades thereby increasing, hopefully, my earnings.

Your exit strategy can be tied to Stop-Loss Orders, something you should be using, especially if you do not have the time to monitor share prices on a daily basis. This is something that you can discuss with your share broker or if you plan on doing it online then you should make sure they have something in place that will allow you to place stop-loss orders. I actually use two, E*Trade and directshares both of who use something called conditional orders to set their stop loss.

Tip #5: Beware Penny Stocks

Penny stocks are low-priced speculative issues of stock that sell for less than $1.00 a share. I was attracted to penny stocks because of their cheapness but unfortunately for me I didn’t take into consideration their speculative nature. Trading in speculative stock is more akin to gambling than anything else in the stock market. I still have stocks in companies that now no longer exist which makes them totally worthless. They’re still there in my portfolio but only as a reminder so that I don’t get tempted again. Unfortunately for me the temptation was too great :wallbash_tb: but I won’t fall for it a third time.

Having said that there are sites that claim to make a lot of money trading penny stocks, and you may want to include some in your portfolio but I wouldn’t go too heavy on them.

Tip #6: Beware Advice From Business Magazines

OK, so I had no idea about share trading so I go out and buy all these magazines in the hope that it would teach me something about share trading, as well as giving tips on what shares to buy. They’re supposed to be the experts so I figured any advice they give to be good advice, surely better than anything I could come up with. Nope! It took two bad share purchases to learn I should not take anything they say at face value without doing a lot more research.

Tip #7 : Don’t Borrow To Buy Shares

Luckily this is not something I fell into, rather it happend to a friend of mine. He took out a margin loan  in order to enter the share market and not being savvy to the pitfalls involved it cost him dearly. Luckily his father was able to bale him out otherwise he would have had to declare himself bankrupt. Here is a great article on margin loans that everyone thinking of taking this route should read.

Tip #8: Diversification

I’ve read that the best way to be successful in share trading is to diversify by spreading your investment capital around in different assets and sectors so as to weather the ups and downs of the market. This is specially true if you haven’t the fortitude of selling shares at a small loss as part of your exit strategy. Unfortunately this requires a fair bit of cash, something that I and I’m sure a lot of you don’t have.

Still I know better than to put all my eggs in one basket and so my diversification consists of dealing with two stocks.

Tip #9: Blue Chip Stocks Are The Go

Blue chip stocks are the complete opposite of penny stocks in that they consist of leading and nationally known companies, ones that have a track record of continuous dividend payments. Because I have great difficulty at setting and sticking to a stop loss exit strategy I now only deal with blue chip companies. That way at least if I’m stuck with them while waiting for the price to rise I’m still making something via the dividends, and some of them pay quite well. So much better than having penny stocks that just sit there giving you nothing in return, which was one of my initial mistakes when entering the stock market for the first time.

Tip #10 Be Aware Of Global Factors

This last point is most important and one that I should have paid more attention to just the other week. :wallbash_tb: One thing you have to remember is that the stock market can be very volatile with dramatic changes happening when you least expect it to. Usually it has nothing at all to do with the company you have invested in which can be as healthy as can be, but as soon as there is some bad news happening somewhere in the world it can cause traders to start selling shares in a wild panic.

This happened just last week because of all the troubles happening over in Greece. The astute trader would have known something was afoot and would have stayed out of the market until the Greek affairs were resolved. Had they done so they would have been able to take advantage of last weeks share crash and picked up some real bargains.

I hope you’ve found this article to be well worth the dollar you spent to reveal it. I truly believe that following these tips will prevent you from making the same mistakes that I did saving you bucket loads of money.

As far as learning how to play the stock market, I’ve put together some resources for you that you may be interested in. Just so you know, if you do decide to buy any of the products below I will receive a small commission.

The Neatest Little Guide To Stock Market Investing seems to be very popular with those who have purchased it.

“Now in its fourth edition, Jason Kelly’s The Neatest Little Guide to Stock Market Investing has established itself as a clear, concise, and highly effective guide for investing in stocks. This comprehensively updated edition contains tried-and-true investment principles to teach investors how to create and refine a profitable investment program. New strategies and content include:

•Basic tips on when to invest and how to reduce the amount of risk in this turbulent market
•A new core portfolio technique that shows readers a way to achieve 3 percent quarterly performance with the IJR exchange-traded fund
•An exclusive interview with legendary Legg Mason investment counselor, Bill Miller, including his thoughts on the financial crash of 2008

Accessible and intelligent, The Neatest Little Guide to Stock Market Investing is what every investor needs to keep pace in the current market.”

[amzn_product_inline asin=’0452295823′]

How To Find A Big Stocks is written by a bloke who claims to have turned $10,000 into $2,800,000. I’ve included this one because it came with so good reviews and because it’s the Kindle version it sells for under five bucks.

[amzn_product_inline asin=’B005LDJR00′]

Strategic Stock Trading: Master Personal Finance Using Wallstreetwindow Stock Investing Strategies With Stock Market Technical Analysis is a little more involved but comes highly recommended for the serious stock investor. Here’s a short description of the book.

Many say few know more about stock trading than Michael Swanson, who ran a top ranked hedge fund for four years and has built up a huge audience of readers on his website WallStreetWindow.com thanks to the accuracy of his market calls and investment acumen, including making over 50% in 2008 in one of the worst years for the stock market ever. His book Strategic Stock Trading demystifies the stock market by explaining what truly makes the stock market and individual stocks move the way they do and shows you how you can take advantage of it. The book explains the principles required for you to become an elite trader in the stock market, including what and when to buy and sell using the Two Fold Formula, how to manage risk, and how to be able to foresee real changes in the overall trend of the market before the crowd does. There are many investment books that describe aspects of technical and fundamental analysis. This one puts them together and shows you have to really use them in a strategic way backed by real life experiences and examples. It also discusses the psychology of investors in the market and how hedge funds and institutional investors now influence the stock market more than ever before and what the individual investor must do in this type of market to succeed.”

[amzn_product_inline asin=’1453666710′]

What you will also need is software to keep track of your investments, even if you’re only paper trading. I personally use the MAUS Stockmarket Plus V11 which will set you back $299. Too bad there is no commission on that link  :down_tb: Buyer be warned though that although it does allow you to update the end of day prices that does incur an extra monthly charge.

I realise that may be a bit high for some people and if that is the case they may prefer to grab an old version of Quicken which has the following features;

  • Quicken Premier 2011 features investment management tools to help track your portfolio performance and maximize your investments
  • Organizes your personal finances and makes portfolio management easier by bringing your accounts together in one place
  • Helps you choose the right investments to reach your goals, and identifies ways to minimize taxes on your investments
  • Shows where you’re spending and helps you see where to save, with more accurate auto-categorization
  • Helps you stay on top of bills and avoid late fees with alerts on upcoming payments

[amzn_product_inline asin=’B003YJ78AE’]

If you found this post to be helpful I would really appreciate a comment telling me exactly what you liked about it.[/ppw]

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Peter Pelliccia

I'm an Aussie blogger who loves to blog and share everything that I've learned on my blogging journey, including blogging tips and ways to blog for money. I am also trying to make my way on YouTube. You can follow my progress by subscribing to My Bonzer Channel.

This Post Has 36 Comments

  1. I don’t know, Peter… Even pros lose money in the stock market, especially during “troubled waters” and the recession we barely made through…. I’m too afraid to invest in shares anymore.

    1. That is so true Jennifer, which is why I feel some of the tips in the post are particularly important. When playing the stock market there will be times when you lose, the idea is to limit both the amount of times that happens as well as minimizing the money you lose.

      1. I see your point of view, Peter, and I agree. I didn’t say your tips aren’t useful because they are. I’m saying I’m too chicken to risk on the stock market. :)

        1. I agree, its definitely not for the faint of heart Jennifer.

  2. I am an accountant, but don’t really like the idea of investing money in stock market. Though my dad earned a huge amount of money when he invested in a mining company stock. He wasn’t able to get his earnings before the value of it went down. As for me, I considered it as a legal way of gambling.

    1. I know there are people who look at it as gambling but professional stock traders aren’t amongst them. Done properly you can make money and minimize losses. With gambling it’s a game of chance, not so with trading shares.

  3. I’ve also started playing the stock market game on Yahoo! last month. I guess I still need a lot of reading to really learn more about the stock market and investing stocks. Thanks for the links!

    1. No worries Sara, I’m glad you found them useful.

  4. Twitter:
    For my part, I had a money market account that got crushed back in 2009 when our economy started to tank. I’ve been thinking about getting into some investing on my own at some point online, so I can have more control instead of trying to trust someone else like I did before. Good stuff Sire; some of that I already knew about but I’ve always wondered about the penny stocks thing.
    Mitch Mitchell recently posted…Social Media Marketing Has Its LimitsMy Profile

    1. Hey Mitch, I’m glad you got something out of it. I do all my trades online and therefore I don’t rely on anyone or anything other than my own research.

  5. The market is wildly uncertain right now. Investors will pull their money from a company at any sign of weakness in hopes of avoiding another dangerous collapse. “Investing in the stock market” can be a dangerous thing for many people. It is often understood as putting a bunch of money into stock, waiting for a few months, then selling it for big gains. That is not how the market works. To adequately engage in the stock market, you must do so full time, or use an investment management company to help you through the process.

    1. I’m more into trading on a smaller time frame Robert. Rather than day trading I try to choose stocks that will allow me to get in and out within the week. If I’m lucky I will do two trades a month if not I’m happy with one. Even if I don’t complete a trade this month I am still averaging approximately $6000 per month

      True investing in the stock market can be a dangerous affair and that is why I’m offering this post, to try and minimize that danger.

  6. I don’t currently invest in the stock market, but I would definitely like to get more involved in that kind of thing. For the time involved to do the research and monitoring, I think I might just end up paying a quality financial advisor to handle it for me. It would reduce a lot of the stress and leave my time free to run my online business.
    Jeremy recently posted…Planwise Financial Planning SoftwareMy Profile

    1. I’ve got a superannuation fund which is obviously handled by professionals and they’re doing a crappy job about it. Sure they may know more about it than I do but they have so many accounts they can’t possibly action them all quickly when needed and I’m sure for the most part they just take your money, invest and then forget about it.

      I prefer to take control of my own destiny. That way if I stuff up I only have myself to blame and have learned something along the way.

  7. I’ve traded for over a year now and I used to play poker professionally. I can tell you, the stock market isn’t for the feint of heart.

    The chances are you will probably lose money. If you really want to give it a go, learn as much as you can about technical trading and keep your losses to a minimum with tight stop losses under support points or above resistance points, and then, still expect to lost a good deal of the time.

    1. Definitely not for the feint of heart Joe. The fact is you can lose money in almost any business but there’s more chance of doing it buying and selling shares, especially for those just entering the stock market game. Il sure this post will better prepare those just getting into it.

  8. You really shouldn’t have mentioned you are in the red from trading stocks. You’d probably sell a lot more copies if you massaged the truth a little and gave readers the impression you became fabulously wealthy off the stock market. I admire your honesty though.

    1. Hey Alex, I’m pretty well known for my honesty and I’m not about to mislead my readers just for a few lousy bucks. I could have left that part out but I didn’t feel right doing that so I thought it best to be completely up front.

      Besides, I’m only thousands in the red because of those mistakes I made when I first started trading. I went in in a big way and completely stuffed up. Luckily I’ve learned from those mistakes and am hoping others will as well.

  9. It would seem the best advice in the current climate would be to stick your money under your matress it would probably be safer!

    My wife does some trading but like everyone else she feels it has got a little harder
    Craig recently posted…New MacBook Pro to Feature Retina DisplayMy Profile

    1. It is harder, but the time to make some real money is to after something has caused the market to crash. The question is will it go down any further. The thing is as long as you can afford to hang on and you pick a reliable stock you can be assured that the market will rally and when it does that’s when you’ve made your money.

  10. I’ve invested in the Past but always in an index tracking fund and always for periods of a few months or more. I think it is easier to gauge whether a market is undervalued or out of favour than an individual stock. Individual stocks for periods of under a week is gambling, not investing. IMHO.

    1. I prefer to trade in stocks. I like to look at how they have been tracking over time looking for trends. I only buy when the particular stock I’ve been buying is at one of the lows and then sell it when I’ve made enough of a profit. There are certain rules that I have outlined that minimize loss in the post.

      If you can buy and sell any particular stock in a week, after studying the market, and make a sizeable profit then I would call that smart investing. Gambling is playing poker, or betting on the horses or the outcome of a spors event where the outcome is dependant purely on chance.

  11. Hey Peter! Stock Market is something which works mostly on luck! I was once too much into Stock Market that I forgot everything …Then once I got busy with other things …I haven’t even checked out the market! In short …it all depends on luck!

    1. In my opinion betting on the horses , the outcome of a football game or buying a lottery ticket depends on luck. the outcome of buying and selling shares depends on more than just luck.

  12. Truly the stock market is not for the risk averse. Just like any gamble, you can win big but you can lose bigger. Sometimes luck plays a key but most of the time stock market investment success depends on your decision making skills and your being well-informed of market fluctuations.

    1. Hopefully this article will minimize their losses Jerry. I know it would have saved me big bucks.

  13. Stock market is a risky thing. I have never tried it so far, but my father is a huge fun and he has made, and unfortunately lost a lot of money, like you. It seems really tempting for me too, to try, but I really want to inform myself better about it first! I will definitely look for a good book as you suggested!
    Thank you!

    1. Yes it is risky but so is starting your own business and it’s a well known fact that a lot of people starting their own business end up going broke. That being the case it’s no surprise that the same thing happens to people entering the stock market, especially if they have no idea what they’re doing.

  14. The industry is extremely not sure right now. Traders will take their cash from a organization at any indication of weak point in desires of preventing another risky failure. “Investing in the inventory market” can be a risky thing for many people. It is often recognized as placing a lot of cash into inventory, awaiting a few several weeks, then promoting it for big profits. That is not how the industry works. To effectively practice the currency markets, you must do so regular, or use an financial commitment control organization to help you through the process.

    1. Yeah, there are troubled times ahead that is for sure. The good thing is that there are bargains to be had, the question is when to get into it again.

    2. Yes, the market is pretty volatile right now but that also means their are more opportunities to get in on undervalued stocks. When you see a stock correcting itself many times it will go very low and then bounce back if you’re skilled at picking these stocks you can earn quite a good amount on those bounce backs.

  15. The stock market is a huge risk that could have a huge payoff, or you could lose a lot of money. But everybody loses sometimes, and everybody has successes. It’s a game of risks, and with recessions happening the stock market can be very difficult to play in and want to continue in.

  16. Great article. If I may add, you need to have a trading plan with reasonable expectations. Always have a watch list, never jump into any trades. Keep emotions out of your portfolio.

    Invest in stock with good fundamentals, and enter the trade when technical indicators are favorable.

    Andrew Hanlond

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