Friday, April 17, 2015

5 Lessons Every Stock Trader Must Learn

Lesson 1: Penny Stocks Will Ruin You

Yesterday I came across an article that I thought was quite insightful and well written.  What really jumped out at me was Scott's opinion of penny stocks because it's one that I share.  There are lots of ways to make money investing but I am convinced that penny stocks will never get me to my financial goals.  I prefer to manage my risk by working only with true growth stocks.  The sooner you learn to steer clear of penny stocks the better as far as I'm concerned!

Lesson 2: Know Your Trading Personality

In my role as a Meetup coordinator for IBD® I am constantly exposed to people who employ all kinds of different investing methods.  For the last 20 years I've thought of myself as an investor but recently it occurred to me that I've actually become a trader.  If you're wondering what the difference is, it really boils down to the goals and methods being used.

I simply don't have the stomach to sustain the types of double digit losses that investors might see over the life of their positions.  Also, I don't have the patience to sit in a position for more than 8 weeks at a time so long term involvement doesn't really interest me.  Knowing that, I've committed myself to planning all of my positions from the perspective of a trader instead of as an investor.

Lesson 3: Have A Process

My trading process has been methodically put together through years of classroom training as well as trial and error.  Earlier this week I released a video that describes the structure of my process:

Building A Watch List & Planning A Trade from Amin Hemani on Vimeo.

No matter what process you decide to use, it's only going to work if you stick with it.  The moment you start to stray or take liberties, you've increased your risk along with your chances of losing money.

Lesson 4: Have The Right Tools

In that video we discussed the most important tools in my process.  If you have the same trading personality as me then the core tools I use should prove effective.  Here are just a few that have returned on the investment for me!

Investors Business Daily - Pay no attention to the dated website, IBD is perhaps the best data company in the business.  If you work with growth stocks in any capacity whatsoever, they are a must have.  

Tom Gentile - Tom is one of the few people in the investment industry that I would consider a mentor.  I first met Tom when he was with Optionetics and I was instantly impressed with his market knowledge.  What impressed me even more was how he put his knowledge into an actionable process.  Switching from analysis to action is perhaps one of the most important lessons I learned from him.  You can also follow Tom on Twitter to get a closer look.

ValueLine - I look to Value Line to help me get beyond what the charts are showing me.  Typically I keep my process as data centric as possible so that I can stop my emotions from influencing me.  Once I get to the bottom of my funnel and I'm doing side by side comparison's of the greatest growth stocks out there - I've got to dig deeper on their fundamentals.  Value Line gives me the objective analysis I need to verify the under currents.    

Lesson 5: Remain Disciplined And Organized

This lesson is easily overlooked which is why I think it's so important to mention it.  There's a common denominator among masters of a profession.  Whether you consider; athletes, business people, artists, crane operators, journalists, or any other profession for that matter, the best performers always bring a high level of commitment to the table.  At this point in my career, trading stocks is my profession so I make every effort to produce with an equal level of commitment.

In an effort to help others stay organized, I put together a handy little spreadsheet that includes formulas for my core criteria. It can be easily updated as the health of a stock changes too.  If you would like a copy, just email me at and I'll send one over for you ASAP.

Also, make sure you're subscribed to our mailing list to get access to my post Monday where I'll give you a break down of market conditions along with a handful of stocks that meet my personal criteria;  You can sign up below!

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Do not take a position unless you are prepared to sustain a TOTAL LOSS. Your loss could include the money you invested as well as commissions and transaction charges.

The Information I provide is for education and informational purposes only. The Information provided is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. The Information provided is general in nature and is not specific to you or anyone else.