A little knowledge that acts is worth infinitely more than much knowledge that is idle.
When it comes to investing, the first thing you need to learn is efficient management of your emotions. It is impossible to eliminate the impulse to act when euphoria or panic are in the air. While you cannot delete the feeling that pushes to you react, you can control your reaction. You can choose to run with the herd of fight panic and stand aside while the herd stampedes. The most important rule is never to let your emotions do the talking; fear and euphoria should be meaningless words when it comes to trading. If you fail to control your emotions, then nothing can help you. All the rules in the world will fail to alter your outcome.
1. Management of your emotions: Panic and euphoria are useless when it comes to trading. Control them or be controlled by them.
2. Patience and discipline: these are two of the most important traits that you need to master, after the above rule. You cannot win in the markets if you are in a rush and lack discipline. You need to wait for the crowd to panic, before deploying large chunks of our money into stocks. If you decide to short the markets, do not oppose the masses just because they have jumped on the bandwagon. One must wait until the bandwagon is overloaded and threatens to buckle under its weight before you head for the exits and plan on taking a position that opposes that of the masses.
3. Popular media should be avoided; if you are seeking investment advice from these places, your investment results will be dismal at best. Use traditional media to get a gauge on what the masses are doing.
4. Have a strategy in place without one success is going to be elusive. Don't attempt to score a home run; your only reward will be loss and misery. The plan should include profit targets on each and every trade, and, an exit plan, in case the trade does not work out.
5. Understand what you are getting into; this means taking the time to find out the nuances of the market you are going to deploy your hard earned cash into. We have put up an extensive list of resources. Free Trading Resources
6. Technical analysis; this tool can further help refine your entry points. It would be a good thing to understand how to use 2-3 indicators; you can use this knowledge to get into the market when the indicators are trading in the extremely oversold or overbought ranges. You can still succeed without using it but putting it to use can help you lock in even larger profits.
7. The law of balancing; when you win a significant amount of money, help one person in your lifetime and your rewards will be 100 fold.
8. Options should be avoided at all costs at least in the beginning of your investment journey. Make some money in the market first and then you can use some of the profits to speculate with.
9. Learn to relax. A stressed mind is no good to you. A diseased body is a body not at ease, so if you are not at ease, you will perform miserably in the markets.
Putting it altogether
A true contrarian never opens a position unless blood is freely flowing on the streets or the investment in question is despised or being ignored by the masses. Buy when the crowd is paralysed with terror and panic and sell when the masses are jubilantly buying. When you are feeling ecstatic, flee for the exits.
Don't be too confident as this is usually arrogance disguising itself as confidence. The stock market takes no prisoners Stops are an important part of trading; they help you minimise your losses. Never open a position without determining upfront how much you are prepared to lose.
Investing is all about emotions and overcoming them. Do not align yourself with the crowd for they are notorious for being on the wrong side of the equation.
''How do you know so much about everything?'' was asked of a very wise and intelligent man; and the answer was ''By never being afraid or ashamed to ask questions as to anything of which I was ignorant.