The Stock Market - Understanding the Risk Involved
Every investment has its risks and the stock market is no different.
It is quite possible to become VERY wealthy in the stock market.
However, it is also possible to lose your entire life savings (nest egg) in a few trades.
I have had my entire account (10's of thousands of dollars) wiped out on at least three occasions so trust me, I've been there.
This can all happen if you are not careful and jump in blindly without doing your homework.
The keys to success are doing your research and really taking the time to "learn before you try to earn" anything.
Live by this phrase and you will be surprised at how successful you will become in anything you do.
Here are some things to consider when getting involved in the stock market.
The common thinking about the stock market is that if you buy and hold for the long term, over time you will make more money than you would by saving your money in the bank or putting it under your mattress.
This is a load of crappy information that is given to the average or below average investor.
I was given this advice when I first got involved in investing, and I can tell you firsthand that "buying and holding" is NOT what you want to do if you want to be successful in the stock market.
If you buy a stock and the position is moving against you, you need to know about things like stop losses, limit losses and exit strategies.
There will be many days in your trading career when the overall market will go through corrections (big drops) in price.
It is true that the market usually recovers over time, but not all stocks recover over time.
You could miss out on some serious dollars if you hold onto a stock as it drops from $300 per share to $1 per share.
Don't believe me? Look at Enron and Netflix.
If you learn to cut your losses early, you can limit your risk by selling stocks sooner.
And you will also be in a better position to profit from the new leaders of the stock market when it starts to recover.
Another lie that I was told is that the only way to be successful is to diversify and buy a lot of different stocks.
After losing all my money a few times I decided to learn about things like cashflow, passive income strategies, fundamental analysis, and technical analysis.
While diversification is never a bad idea in and of itself, it is important to consider a few points.
1) If you are not starting off with a lot of money, with diversification, any profits you make will be quickly taken away by brokerage fees and transaction costs.
2) You might find that it is better to focus all your time and energy on 1 or two stocks, learn their industry and price patterns, make profits, and then move on to the next stocks.
3) You will find that it is possible to get the diversification you are looking for by investing in ETF's or buying index stocks like the QQQ which tracks a basket of stocks.
It is quite possible to become VERY wealthy in the stock market.
However, it is also possible to lose your entire life savings (nest egg) in a few trades.
I have had my entire account (10's of thousands of dollars) wiped out on at least three occasions so trust me, I've been there.
This can all happen if you are not careful and jump in blindly without doing your homework.
The keys to success are doing your research and really taking the time to "learn before you try to earn" anything.
Live by this phrase and you will be surprised at how successful you will become in anything you do.
Here are some things to consider when getting involved in the stock market.
The common thinking about the stock market is that if you buy and hold for the long term, over time you will make more money than you would by saving your money in the bank or putting it under your mattress.
This is a load of crappy information that is given to the average or below average investor.
I was given this advice when I first got involved in investing, and I can tell you firsthand that "buying and holding" is NOT what you want to do if you want to be successful in the stock market.
If you buy a stock and the position is moving against you, you need to know about things like stop losses, limit losses and exit strategies.
There will be many days in your trading career when the overall market will go through corrections (big drops) in price.
It is true that the market usually recovers over time, but not all stocks recover over time.
You could miss out on some serious dollars if you hold onto a stock as it drops from $300 per share to $1 per share.
Don't believe me? Look at Enron and Netflix.
If you learn to cut your losses early, you can limit your risk by selling stocks sooner.
And you will also be in a better position to profit from the new leaders of the stock market when it starts to recover.
Another lie that I was told is that the only way to be successful is to diversify and buy a lot of different stocks.
After losing all my money a few times I decided to learn about things like cashflow, passive income strategies, fundamental analysis, and technical analysis.
While diversification is never a bad idea in and of itself, it is important to consider a few points.
1) If you are not starting off with a lot of money, with diversification, any profits you make will be quickly taken away by brokerage fees and transaction costs.
2) You might find that it is better to focus all your time and energy on 1 or two stocks, learn their industry and price patterns, make profits, and then move on to the next stocks.
3) You will find that it is possible to get the diversification you are looking for by investing in ETF's or buying index stocks like the QQQ which tracks a basket of stocks.
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