Wall Street has gone out of it’s way to make it easy to buy stocks but at the same time convince you that the market is way too sophisticated for the average investor. They promote the professionals while promoting a buy and hold strategy.

I think the main reason that they recommend buying and holding your stocks is because they don’t know when to sell. Since they don’t know when to sell, they promote never selling. What an easy out. The time to buy is always right now and the time to sell is long term.

If you really want to make money buying stocks you can’t adopt that philosophy. You’ve got to study the stocks to buy and look for two distinct prices — the price you are going to buy at and the price you are going to sell at. Doing that is easier than you think but it’s an art not a science. What that means is that the skill doesn’t come without practice.

To do this, you need one important tool and that’s a stock chart that shows the price and volume action for the stock over period of time. What you are looking for is identifying when the stock is being bought by institutional investors which are the driving force behind pushing a stocks price higher. You do that by noticing when a stocks price is closing higher on higher than average volume. How can you tell when to sell, by looking at the exact opposite. When a stock price closes lower on higher volume, that’s your cue to exit the stock. By observing these clues to who is buying the stock, with practice you can pick when to buy and sell stocks like a professional.

1. Keep entry, exit, and stop prices intact before starting trade.

2. Don’t try to catch trades. If stock doesn’t meet criteria, then move on.

3. Don’t buy when a stock is at the peak of its run.

4. Wait for some form of price confirmation before taking action, by using technical analysis.

5. When it seems like everybody is excited about a stock… sell.

6. Don’t fall in love with stocks. Never partake in emotional trading.

7. Take profit when you can. Scale out if needed, but don’t risk losing profit.

8. Don’t commit stock chart fraud. Pick an analysis method and stick with it.

Are there any other simplified techniques to instantly cut down on any potential market losses?

How does one know when to sell?

Obviously, depending on your individual strategy and desired profit margin, each answer will be somewhat different. That being said, there are a few guidelines to help you determine when exactly you should be looking to take your profit and run.

1. You stock hits its initial exit target. Basically the most simplest and basic answer. There are 3 targets that should be created before you buy a stock: buy, sell, and stop. Once your target is met, execute the proper action.

2. Your stock is gaining popularity. Just like real estate and any bubble, the more people that enter, the more likely the value of that entity is about to come crashing down. Once you start to feel that more and more buyers are coming than sellers, consider dropping your position. Some people use the level I or level II function of their trading platform; however, just monitoring news and social buzz should be good enough.

3. Wait till the current momentum tops out. Rarely can anybody ever call an exact bottom or top; however, we can usually get close to calling the top or bottom of a mini rally or current momentum. If you are looking to exit your stock, then try to wait until the current mini-momentum is over. This can easily be done by incrementally moving your stop price up until the actual price and stop price meet.

When it comes to selling there is no exact science or simple rule on when to do it. The best thing you can do is trust yourself, and take profit when you can.

Quick example: You buy shares of Stock X at $20. The stock goes down to $10. In order to try and limit your risk and losses, you buy the same amount of shares of Stock X at $10. Now your shares of Stock X is $15.

As you can see from the example above, you essentially bought more shares of Stock X to try and hedge your losses. While it is a common practice, many traders have various opinions on whether is a good or bad thing to do.

By obviously look at the end picture, we can come to conclusions. Yeah, if Stock X makes it way to $30, then averaging down was a great thing to do. What if it went down to $5? Because you wanted to average down, now you invested more capital into a still sinking stock. Are you going to average down again? What if Stock X goes to $3?

You can see that there are two distinct outcomes of averaging down. The positive and the negative. The debate about averaging down is when do you consider the trade a loss and get out?

When you initially bought your second round of shares at $10 you instantly added more capital into that holding. That is cash that can’t do anything. Yeah, if it goes up good, but what if it continues to go down? Will you sell, average down again, or just hold?

If you sell, now you incur the losses from both rounds of shares. If you average down again you are now taking on more risk. Think of it like a bet. You lost the first time, so you now offer double or nothing. Lost again, so now you offer triple or nothing. When will you consider enough is enough? Finally, what if you decide to hold? With your first attempt at averaging down, you put more money into the stock because you felt it would go up. When will you consider the trade a bust?

Kind of bringing this back to the debate, whether this is a good or bad idea? It really depends on your strategy? Are you investing in the company or just playing the stock game?

If you are investing in the company, then you did your research and have a good feeling of what should happen with the stock.

If you are just playing the stock game and feel the stock should go up higher sometime, then why waste time. Minimize your losses, get out, and move on to the next stock.

What do you think about averaging down?

Overcoming stock prejudice is is sometimes are hard thing to do, but just because somebody else is recommending something does not mean you have to follow it. To each its own, and it is up to you to see if that particular stock is right for you.

I think it is safe to say there is no shortage of stock recommendations or advice. With StockTwits, you can get something every second of the day.

That being said, anytime somebody recommends a stock or advises you to do something always run it through your own analysis. If it does not work for you, fine. You never know what the other person’s risk threshold is, how long do they plan to hold the stock, or what kind of return they are looking for.

So the next time somebody recommends a stock and you hate their methodology, don’t instantly criticize them. Run it through your own method, and if you don’t like it then move on…

Creating your very own news database is as simple as subscribing to a site’s RSS.

What is RSS

For those of you who have yet to join the 21 century, a RSS simply gathers the latest articles from the particular source. For example, MarketWatch has an RSS. The best part is that most sites have more than one. You can grab the RSS of a certain category that interest you. To get a better idea, you can check out what MarketWatch has to offer.

How to Combine all the RSS

The whole point of creating our own news database is so that we can see all the information on one page. It saves time and cuts down on the useless news we may have to maneuver through.

There is no need for a long list of bookmarks or moving from one site to another. We just have to choose our RSS reader. There are more than enough to choose from. Some of the most popular ones include: Google Reader and Yahoo Reader. There are even readers that can be downloaded and used like any other application.

If you have an account with Google, Yahoo, or some major party like that, then more often than not they have a reader you can use.

Once have chose a reader, it is as simple as just subscribing to the information you want. Now your reader will automatically be updated whenever one of your sources as been updated.

Final Implications

When it comes to trading stocks, a trader needs to make sure they know all the information. The more one is aware, then the more likely for a positive trade. With a customized news database, traders can bypass news not pertinent to them and focus on what they really want to know.

MarketClub – 7 FREE videos all traders MUST watch

What side do you fall on?

For every argument there is always a counter. In virtually any aspect of life there are people willing to buy or sell, whether it is a tangible object or an idea. The key is landing on the side that benefits you the most.

Some people feel oil production is on the decline, while others feel we are just at a bump in road. Even in this horrible housing market homes are being bought and sold. On the stock market, many buy the theory the worst is behind us as other do not. When it comes to investing there can really never be one true answer. After all each investment is essentially betting against somebody else.

No matter what side of the fence you fall on there will always be an opposition on the other side.

What does this all mean?

Don’t listen to everything you hear. Whether it be forums, message boards, or just people in the community there will always be some sort of bias. That doesn’t mean they are right, yet it doesn’t mean they are wrong. It is up to YOU to decide what is the best opportunity for YOU.

You may have heard of penny stock scammers. They are the ones who send you those great tips on a breakout stock, and most of the time this stock is under $1.00. Their main goal is the hype up the price only to cash in on an eventual short position, which will make them money and lose you lots.

We are in a greed driven society and many will do whatever it takes to succeed. Even if that means to lie or “embellish the truth.” For example, in the stock market, John Doe may have bought into a company thinking they were on the rise. Suddenly the stock starts to tumble. Now, in order to save himself, John might start floating around false or “embellished” information.

So, who cares if average John Doe is spreading some rumors?

Well, what if it wasn’t just John Doe? What if it was one of those respectable guest or analysts on the news channel? What if it was some authority on the web needing to get out of a jam? With many followers that grab every word they say. Suddenly you have many more John Doe’s.

The Key Lesson

Be careful when taking advice from anybody on anything. You may really never know what there biases are, previous or current experiences, or if they really even know what they are talking about.

Sure you can take everything in, but, at the end of the day, your decisions will ultimately effect YOU and John Doe doesn’t care about YOU.

This article was not meant to tarnish the reputation of anybody really named John Doe.

image source – kaltoons.com | this article is based on TWI article from June 14, 2008