I’ve been studying the stock market and investing for decades, and there’s one thing that’s always bothered me:
The stock market is made to be over complicated to the public.
They don’t want you touching even a penny of their profits.
Well, that all changes when you understand these 4 basic stock market principles.
In fact, these principles puts you ahead of 90% of the other people.
You’re made to believe that Wall Street is this complex system that only a genius or financial guru can touch…
It is complicated the deeper you dig, but you only need to scratch the surface to start making some real money.
That’s why I’m constantly preaching to not give in to the so-called “experts” who want you to think that investing is so complex that you must pay an exorbitant amount to handle your money.
You see, it’s all set up by people who don’t want the Average Joe to realize he can make money through stocks on his own. How would they collect a paycheck for telling you what to do if that were the case?
But the truth is that it’s easy to make money from investing whether Wall Street likes it or not.
And it all boils down to 4 basic principles…
Everyone knows at least one way to make money on Wall Street, right? You buy shares of a stock at a certain price, wait for it to climb, and then sell it at a higher price.
But what if you could make money by doing the opposite? If you can do that, you can make money any time, including when the stock market is heading straight down!
It’s called short selling, and it can hand you easy paydays when you know the 4 basic rules to do it correctly…
#1. Don’t short strong stocks because they’re “too high”
Short selling is basically the opposite of buying. Consider it as borrowing shares that you can sell now and buy back later, hopefully at a lower price. In essence, you make money when the price of a stock you short sell goes down. Simple, right?
So, just like you don’t want to buy a weak stock, you DO NOT want to short a strong stock. Many people will be yelling that a strong stock is overvalued, but the price is the price for a reason. So, if a stock has been doing nothing but climbing, don’t short it because you think it’s “too high.”
2. Target weaklings
Instead of trying to pick out the climbing stock that could start falling, we would rather focus on the stocks that have been showing their weakness by consistently falling. Look for a trend that’s declining.
And an even more powerful short sale would be pairing an already-weak stock with poor earnings reports (these are considered a part of the fundamentals of a stock).
Earnings have the power to send a stock one way or the other 10% or 20%, so a proper short sale mixed with bad earnings should mean an easy payday for you.
3. Milk the fall
Don’t be afraid to milk a short sale as far down as possible. Human nature makes us want to close a trade as soon as it’s profitable, but we can watch a stock fall and watch our profits pile up all the while.
When the stock manages to stop the bleeding, we can bail. But that’s after we snatch big profits, of course. And we can comfortably do this with our secret weapon…
4. Use a stop loss
A stop loss closes a trade out when the price hits a certain point.
When buying, you should include a stop loss below the current price of the stock, so if it falls to that stop loss price the position will close before it can go any farther down and cause greater losses.
When short selling, we’ll always include a stop loss above the current price to make sure we close it out if the stock manages to climb up to that stop loss price.
When we include a stop loss within 10%, we can comfortably ride it down knowing that we’ll be protected if the stock turns around.
Don’t let the complicated Wall Street explanations stop you from profiting in any type of market.
These 4 basic principles will put you ahead of 90% of other people.