Share Tips

When it comes to trading the Australian stock market, there are a number of different ways in which you can enter the market.

Many people rely on luck when it comes to trading, and buy their stocks based purely on "gut feeling", share tips, or advice from friends and co workers.

Trading in this method is somewhat like gambling, and relying on luck or good fortune to shine on you.

Many years ago, I came to the conclusion that if I was to make a decent living from stock market trading, then I had to treat it like a business, and as such, take a more professional approach than simply relying on share tips form friends.

I realised that many people make their livelyhood from the stock market, and that certainly, to make a livelyhood, you couldn't always be so lucky. You had to have a system for making money consistently.

Over the years, I have discovered that making money consistently as a stock market trader is not that difficult, and it is really just like any other business. You are going to have good days, and you are going to have bad days. You are going tohave days where you make money, and days where you lose money, but so long as the money that you make on the good days is more than the losses that you took on the bad days, then overall, you will be profitable.

For example:

If you were to take 10 trades. Let's say you lost 9 of them and only won 1 of them. (I hate using the word lost and won, as it conjures images of gambling, but it's not). 1 win and 9 losses is a very bad strike rate, infact it's only a 10% win rate.

Even using the law of averages, you should expect to do better. When you first buy a share, only one of two things will happen; either the share will go up and you make money, or it will fall in price, and you will lose money (if you sell).

Therefore, really, you have a 50/50 chance, but for the sake of this illustration we will stick with our bad 90/10 example.

This is where Money management comes into play.

Let's say that using a tight money managment strategy you limited your losses, and maintained your gains. For example:, you recognised your losing trades quickly, and stopped them and took a small loss, but when you were in your winning trades, you allowed them to run, and let the profits continue to grow.

Let's say that your losing trades you set a stop-loss, which automatically exited you out of the trade if the lost got to $100. Let's also say that the winning trade kept growing, and made you $1,000. In this example, you have lost 9 trades @ $100 each for a total loss of $900, but have made a gain on your winning trade of $1,000. Therefore, your total profit is $100 even though you lost 90% of your trades, you still came out ahead.

So many people become obsessed with share tips, hot stocks, and subscribing to stock tipping services, but forget the one important factor. - Money management

Even if you subscribe to a service which provide you with good share tips, and maybe give you 60% winning trades, the realitly is that you can still lose money if you don't know what you are doing.

It only takes one bad trade to wipe out a whole string of good winning trades. Let's say that you just had 6 winning trades in a row, all of which had made you $1,000 each. However, you also get one bad trade, and don't set your stop-loss strategy in place, or don't know when or where to exit, and this trade (which you had say $10,000 riding on), went totally belly-up! - well, you have not only lost the whole $6,000 which you had just won on your previous 6 trades from your share tips, but you have also lost $4,000 of your own money - Ouch!

Finding winning stocks is the easy part. Even if you only work on 50/50 averages you can still make a decent amount of money, if you know how to properly manage your trades as well as your money.

As a professional trader, you need to treat your stock trading business as just that - a business. And as any business, you are in it to make money, and must identify problem areas quickly, and shut them down if they are costing you money.

There are so many good, and potentially very profitable trading opportunities in the market each day, that it is not worth leaving your money sitting around in bad trades. Better to take it out, take a small loss, and move on to the next one. You can always come back, and buy that stock again at a later stage if you wish.

In my Trading Essentials home study course, I teach you the importance of money management, and how to pick winning stocks without the necessity of subscribing to an expensive share tips service.

I'll show you how to know what to look for, and when to get in as well as out of the market safetly. But more importantly, I teach you how to know how much money to put on each trade, based on how much you have to trade with, and how much money is already tied up in other trades.

If you haven't already done so, grab a copy of my free info pack, which explains more in step-by-step detail