My Secret for Beginners
How to Get Off to the Most Productive and Efficient Start in the Stock Market:
You don't always have to learn the hard way. You shouldn't have to lose thousands of dollars in the stock market before saying, "ok, I think I need to find a better strategy."
The problem with the stock market is that anybody can join at any time. Would you try out for a baseball team if you've never even played baseball before? Of course not! The reason so many people lose a fortune in the stock market is simply because they are not educated about the market, they jump in too soon, and they want to get rich quick.
If you don't learn all you can about the market first, then you are setting yourself up for failure. I know you are excited to discover my secret to getting off to a productive start, so lets skip to the point.
First, read everything on this website and read a selection of investment books written by the greatest traders of all time.
After you get a good understanding of how the market really works, visit http://www.investopedia.com and join their free stock market simulator. The simulator is a replica of the real market, for example, if Microsoft goes up $0.50 in real life then it will also go up $0.50 in the simulator (its a big copycat of the real market). This will give you an opportunity to test out your newly acquired knowledge and strategies in the stock market without risking your real hard earned money. Keep in mind, however, that stock simulators do have pitfalls, and you should not get in the habit of using virtual money. Why?...
What can be so wrong about using virtual money to practice?
If you have never invested in the stock market before, then you REALLY need to learn about stock market psychology. When using virtual money to practice on a stock simulator online, you do not have the same emotions that you would when your real money is at risk. If you are using fake money then you will be able to invest all your money in a stock with a one in a million chance of tripling in price, and you will be able to sleep at night. You would NEVER do that with real money.
When using real money, your emotions will have a major influence on your decisions (unless of course you can control your emotions). This is the only problem with practicing strategies using virtual money. Using stock simulators is still an excellent tool for testing your strategies, but the point here is that just because you might execute the perfect moves in a simulator doesn't mean you will be able to do it in real life as long as real emotions are influencing your decision making. There is still good news to this though...
How to Control Your Emotions
Letting Emotions Influence Your Judgment is a Sure Way to Lose Money:
So how do you control them? In order to control them, you must understand them. You must understand and be aware of what is going on. When you want to buy a stock, you have to make sure that you want to buy it because of sound judgment and not because you heard some "exciting news on TV."
If you are going to invest in the stock market based on emotions then you are better off gambling in Las Vegas. If you are serious about investing like a professional then you will greatly benefit from the following book written by one of the most respected traders of all time (he is my personal favorite).
This book is the complete guide to understanding stock market psychology and how to profit from it. Think of it like this: what is the best time of year for a beach resort to offer discount deals and host events on the beach? SUMMER! This is a no brainer, and it is due to psychology; everybody is in the "getaway and have fun in the sun" mood. The resorts know this and take advantage and profit from the mood of the people.
You can learn all about how mood affects the stock market and how you can profit from it (and avoid losses!) by investing a week into reading the book listed below:
This guy made hundreds of millions of dollars and is one of the most respected traders in the history of the stock market. Trust him and his knowledge that he acquired over a lifetime of experience trading stocks.