Over the last year, we have witnessed one of the worst market conditions in nearly a century.  Early in 2008, predictions were being made that the bottom was here, and that we should begin to see some market improvements, and should pull out of a period of slow growth.  Little did anyone know that we were already in a recession, and that we would see our markets nearly collapse due to tight credit conditions, sharp rises in energy prices, and foolish banking practices. 

 

It was in early 2008 when I entered with a small sum of money to begin trading, as it was apparent to me that if the bottom was “here”, I could begin making a successful side business in trading.   I was met with some early success, so I then funded my account with a much larger sum, as it seemed my dream of working from home was getting much closer.  Then the floor dropped from under me.  I never lost all of my money, but there were times when I was scraping the bottom.

 

I’ll share some vital things I learned here, in hopes that you won’t do what I did.   These are real life stupid mistakes I’ve made, and have since read about them. 

 

Rule #1:  Never trade money you cannot afford to lose.  Seriously.  Don’t miss this one.  If you are not an experienced trader, find some simulation stock trading systems and practice for 3-6 months.  Don’t worry about the good deals.  There will always be good deals.   No quick money scheme has ever worked, no matter what those paid advertisements tell you, and neither will the stock market.

Rule #2:  Never, ever, use market orders.  This is like paying $400 to scalpers outside sporting arenas for $25 dollar tickets.  Don’t do it.

 

Rule #3:  Never buy first thing in the morning.  Eighty percent of the time that I have been in stocks, market makers (traders that manipulate stocks) sell high first thing in the morning, and drive the price down in the middle of the day.  Dips typically happen in penny stocks between 10:30am and 12:00pm.  Depending on the market activity, dips can continue into the afternoon, so watch and wait carefully.

 

Rule #4:  Avoid premarket and after hour market trades. The same people that take your money in market orders, will take your money outside standard market hours, and laugh all the way to the bank. 

 

Rule #5:  Message boards are full of pumpers and bashers.  There is very little useful information, aside from speculation, assumptions, and surmising (sounds like a church get-together, doesn’t it?).  Pumpers want you to buy for two reasons, to either make the stock go up, or so you’ll buy it and they will short the stock, drop the price, and take your shares.  Bashers want the stock to go down so they can get cheap shares, for exponential gain.   Glean what you can, but be careful….this leads to my next thought….

 

Rule #6:  Leave emotion out of your stocks.   I was physically sick when the floor dropped out of my stocks last year.  Why?  It was money I put in, and didn’t have it to lose.  Second, how do you come home and tell your wife you lost a good part of your savings?  Stocks go up, and stocks go down.  Set your limits on what range you should get out of a stock before you purchase it.  In my opinion, most stocks decline 80% of the time, and rise the other 20%.  So make sure you can read when a bottom is close. 

 

Rule #7:  Find stock buddies.  These are good voices of reason.  Find people that make sense, and won’t tell you what you always want to hear.  I’m more into technical analysis, whereas my stock buddy is more into the fundamentals of company ratios.   Both can lead to great gain if used correctly.  Some stocks are moved by sell pressure points, others by news and press releases.  Look at history to find out what moves a stock.