You’ve worked hard all your life, but unfortunately, you haven’t been able to build real wealth. Every paycheck ends up going towards bills, and the only investment you have is your retirement fund. You know that if you want to travel the world, retire at 65 (or sooner), and have money for your kids and grandkids, you’re going to need to learn how to invest in the stock market.
As an outsider, you’ve heard both terrible and wonderful news about the stock market. You know that it’s had record highs lately, but you know that in the past, it’s crashed hard. Is it worth the risk? What if you made one bad decision and lost it all? Fortunately, you can avoid catastrophe and instead gain profits by using a rules-based trading strategy.
Before diving into what a rules-based trading strategy is and how you can use it, let’s first look at why it’s a great idea to discover how to invest in the stock market.
Why Learn How to Invest in the Stock Market?
When you get your paycheck from your full-time job, you put a bit towards savings and small investments. However, those savings aren’t adding up to enough to sustain you and support your family for the rest of your life. Your savings account may make 2.5% interest (if you’re lucky), and your bonds will make you about 5% interest.
Stocks, on the other hand, pay out an average of 10% interest annually. If you invested just $100 on the S&P today, it would be worth $260 in 10 years. Invest that same amount in government treasury bonds, and you’ll have $131 over 10 years. Invest it into a savings account at 2.2%, and you’ll have $125 in 10 years. You need to learn how to invest in the stock market today because the math is on your side when you put your money into stocks.
Another reason you should study how to invest in the stock market is because it has been doing fairly well over the last few years. Aside from the news about China trade relations, it has been healthy and stock prices have been going up. In 2019, stocks are expected to surge to new highs. It’s because the economy is doing well – unemployment is low, and people are spending money. If you want to invest in the stock market, now is the time to do it.
Prior to jumping right in, it’s important to establish a rules-based trading strategy.
What Is a Rules-Based Trading Strategy?
When learning how to invest in the stock market, you’ll hear about rules-based trading strategies. A rules-based trading strategy is a decision-making strategy you will use when investing in stocks. You need to design one so you’re not simply trading based on your emotions, but on logical rules that you established before you began trading.
It’s important to think with your brain and not act with your heart when it comes to investing. Let’s say you’re simply acting off emotions. You lose $1,000 in a stock, so you decide one month to withdraw your entire investment out of fear and frustration. But then the next month, the stock shoots up again. You could have made that $1,000 back and then some if you had kept your money in it.
Let’s say you’re losing a lot of money on a stock, but you really believe in it. You think it’ll shoot up again because your gut is telling you it will. So, you double down on your losses. You wait a month, a year, maybe 18 months. The stock never goes up. In fact, it keeps tanking. You lose your initial investment and the money you doubled down with.
A rules-based trading strategy can help you avoid these negative situations and profit off the stock market instead of losing money. It will be your guide to refer to even if you get a little emotional about your trades. Your strategy will help you stay focused and only go where the money is.
Establishing Your Rules-Based Trading Strategy
Now that you know how important it is to have a rules-based trading strategy, it’s time to establish yours.
The first step is to create a trading plan. Your plan should include your motivation for trading stocks, how much time you can commit to it, your goals for trading, your risk-reward ratio, and how much capital you can dedicate to trading. You should also include your knowledge about the market.
Your goals should be specific and time-bound. For example, say, “I want to make $2,000 on stocks by 12 months from now” instead of “I want to become wealthy from stocks.” Once you know your goals, you can see how you can reach them.
When it comes to capital and risk, don’t ever risk more than 1-3% of your entire portfolio on a single trade. You also shouldn’t risk the funds you raised for retirement or your kids’ college education. Instead, raise capital specifically for trading. That way, you aren’t risking everything if you lose it.
Once you outline your knowledge about the market, you can figure out where you need to fill in your gaps. You should know things like how much a stock’s price is per share, how the stock has done recently, what’s on the horizon for the stock, how investors are viewing the stock market in general, what affects trading prices, etc.
Study various news outlets like MarketWatch, Nasdaq, and The Wall Street Journal for additional insight. Sign up for stock market alerts on your phone as well. Realize that many investors use emotions when trading, and you can use that to your advantage. For example, bad news about a stock one day can cause it to plummet. However, it doesn’t necessarily mean it’s going to continue in that direction. Look at historical data on stocks on Nasdaq.com to see what normal highs and lows are.
If you choose to day trade, have a stop-loss amount in mind. This is the amount of money you are willing to lose on a trade before you back out. If you don’t have this established, you may end up going all the way, putting in all your funds, and consequently losing them. A stop-loss is just another way to combat your emotions.
Another method for day-trading stocks is to keep a trading diary. You’ll record what trades you made, how much you won, how much you lost, how long you stayed in a position, etc. You can review your trading diary and look for successful patterns to follow in the future.
Finally, learn how to read charts, like the ones on TradingCharts.com. Traders on Wall Street do so well because they have valuable trading charts and data on their side. You may never have access to that type of data, but you can do your best at home by learning how to correctly read charts and patterns and predict price movements.
Determining How to Invest in the Stock Market with Fast Fortune Club
Once you’ve come up with your rules-based trading strategy, sign up for Fast Fortune Club, a subscription-based newsletter that is delivered to your inbox on a regular basis. You can learn from industry titan Tom Gentile about how to invest in the stock market, what stocks you should buy, how to shield yourself from losses, and how to win big. Having an expert mentor like Tom Gentile guiding you will help you boost your winnings and ensure you’re setting yourself up from success on the stock market.
You now know the basics of how to invest in the stock market and rules-based trading strategies. Are you ready to sign up for Fast Fortune Club and building true wealth? Subscribe today to change your life for the better tomorrow.