Prosper Newsletter: November 2006 > Stock
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Mentor Program Turns Past Losses Into More Than $16k In Profits!
After 2 years of frustrating losses, I joined the mentor program. My first call to my mentor was about a week and a half ago. I explained how I was trying to scalp everything to make some money. He told me to calm down and use what I already know. I just wanted to call and say thank you. Using a demo account, per his suggestion, from July 6th, to the 17th, I have made a profit of $16,249.32, all because he told me to calm down. Those were not his exact words but that is what he said; go for big moves in the market every couple of days don't try to scalp everything every five seconds. I want to say thank you in a big way. I am going to continue to do this paper trading in the demo account for at least another month. So far, I have done 7 trades and every one of them has been at least 100% or more profitable. I think I have found a strategy that works very well! Like I said, I am up over $16,000 and I just wanted to say thanks again!
Just as a side note, I am in my 8th trade (July 19) and already ahead by $2500
- Jeremy S
Waxahachie, TX
We are now looking forward to the Fed's interest rate decision next week. The overall consensus is that they will not raise them and leave them alone this month.
Earnings reports start next month and so far things are looking good for the blue chips. Proctor and Gamble (PG) has recently given guidance that they will be reporting good earnings this quarter. The NASDAQ has been on the move lately led by computer stocks such as HPQ, AAPL, CSCO, IBM, SNDK, and INTL. All these stocks have been on the move and are expected to do so until year end. The retail sector has been one of the leading sectors to watch this week, as well. Overall the remainder of this year appears promising for a fall rally.
Keys to Successful Investing
The stock market can be volatile at times. Many novice investors fail to achieve the success they desire due to the fact that they have little or no guidance to go on. Many people find themselves purchasing over-priced, trendy stocks and losing money when the stock's popularity wears off.
There are countless different ways to make money in the stock market. Just as each investor is unique in the way he or she lives, investment strategies differ as well. However, there are some key attributes that can help you to be successful as a stock market investor. Consider the following topics to help you find success:
Define Success
One of the first things you need to do, even before you start investing in the stock market is to clearly define your intentions with regards to your investments. The ideal situation of each investor is different. Some investors are beginning a life-long journey. Other investors count on the gains from their investments to provide a living for themselves and their family.
Another thing that you need to do is to clearly write out your definition of success. This definition also varies from person to person. What one person may consider a success another may consider a failure.
Make sure that your definition of success is reasonable according to the criteria above. Do not create a definition that is too easy to accomplish either. Give yourself room to grow and develop. Create definitions for both the long and the short term.
Make a Plan
Once you have defined what you consider success, it is time to figure out how to get to that point. Your plan should be a roadmap directing you to your destination. The plan that you have should have a timeframe attached to the different tasks that you will need to accomplish in order to arrive at success.
A second part of the planning stage is to make exit plans for your stocks. In this section you want to plan the circumstances in which you would sell your stocks. This is most effectively done prior to purchasing stocks. By planning ahead of time you can avoid selling too fast or too slow.
Identify Limiting Emotions
Most people have strong emotions tied to money. These emotions can vary greatly from person to person, but many people limit their own success because of the way that they react to their own emotions. These emotions can be fear, greed, sense of security, etc.
The danger that these emotions play in stock market investing, as with other investment strategies, is that they may cause you to do things that are not best for you in the long run. Some people fall in love with a particular stock and hold it way too long. Others commit too much of their resources to one stock and pull out early because they are afraid of losing everything or get greedy and lose money when the stock drops.
Take the time to evaluate the way that you trade. Identify what emotions you feel and how you react. Discuss these emotions with your mentor who should be objective. Have your mentor help you create a plan to manage and control your emotions so that they become an aid rather than a hindrance.
Identify Your Personal Investment Strategy
As you begin investing in the stock market, you will need to create and identify an investment strategy. This step is different than the planning stage that we previously covered in that this is the way that you will be finding and buying stocks. Your investment strategy will determine what you are looking for in the stocks that you select.
Some investors choose to look for stocks that can be purchased and will yield long-term gains. Investors using this strategy generally do much more detailed research into the company when selecting the stock. These investors do not generally worry about the short term fluctuations of the stock but focus on the long-term value of the trade.
Other investors take a short-term approach to investing. These investors attempt to identify the immediate trends of stocks and identify the peaks and valleys. These investors buy low and sell quickly, attempting to make a larger percentage in the short term.
Before you select a strategy for yourself, talk to your mentor and identify a strategy that will work well for you in your situation. Learn all that you can so that you can be successful in your investing strategy.
Track Trades
You likely realize the importance of learning from both your successes and your failures. One of the best ways that you can do this is to create a trade journal. Your trade journal should include the dates of when you purchased and sold the stock, the number of shares that you purchased and the purchase and selling prices. You can also write a paragraph or two identifying what you did and the emotions that controlled your decisions.
Review your journal often. Look for trends that are helping or harming your long-term plan. Make sure to build on your positive trends and work to eliminate the negative trends. If you have any questions, make sure to talk to your mentor and have him or her help you create a plan to eliminate negative trends.
Learn to Manage Money
Managing money is an important part to success in any investing strategy. Proper money management will allow you to retain and build your wealth much faster. It may be worth taking a course or a seminar to help you learn to manage money better.
Accept Personal Responsibility
Risk yields reward. In order to cash in on those rewards you must accept that you will make mistakes. The key is to reduce the amount of mistakes that you make. You should also learn to identify what you did wrong in a situation and learn how to correct these shortcomings rather than blaming others for your mistakes.
Trade Using Available Funds
You should make it a habit to only use dedicated money for trading. Use money that you can afford to lose and still be able to make your required payments. Although you are not planning to lose money it is always a possibility. Also, once the money has been dedicated for trading, do not withdraw it to spend. Rather use a portion of the returns from your trades for extra expenses. Make sure that you are continually building for the future.
Diversify Your Portfolio
Diversity can also help you be successful. You have probably heard the popular dogma that says, "Don't put all of your eggs in one basket." This is true with stock investing. You should never put all your investment in one place.
It is also important to realize that this not only applies to the same stock but also different stocks within the same industry. Often industries follow a common trend so you should diversify and invest in different industries as well.
The stock market can pay great dividends if you research and use proven techniques as you invest. The ten fundamentals that we covered in this module can help you to be successful in your trading. Learn from those around you and from your experiences.
