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How to Make Money Trading - 3 Rules for Today's Trader
Submitted By: SB Wise Date: December 17, 2010, 10:02:47 AM Views: 1217
Summary: The best way I know how to make money trading is to observe three fundamental rules: invest briefly, defensively, and with maximum leverage. Today's retail trading environment is vastly different from the world of value investors Graham, Dodd & Buffett.

The best way I know how to make money trading is to observe three fundamental rules: invest briefly, defensively, and with maximum leverage. Today's retail trading environment is vastly different from the world of value investors Graham, Dodd & Buffett. Today's day traders rely on getting money invested quickly as the tide is rising then divesting on auto-pilot after a set price point is reached. Retail traders who want to know how to make money in stock market investing but are unwilling to play fast, hard, and ruthless will not find success.

How to Make Money Trading Rule #1: Invest Briefly
The number one mistake retail investors make is to hold on to a stock too long. This is one area where the venerated philosophy of Graham, Dodd, and Buffett still holds true: people sell winners too quickly but hold on to losers forever. One of the better ways to avoid this sort of fate is to use fixed term investments like options or binary options contracts in order to eliminate the variable of when to sell a position. A contract with a fixed maturity forces discipline on the trader, making the trader continually evaluate the potential increased benefit of continuing to carry a position rather than unloading it. Further, a fixed maturity guarantees that at some pre-determined point in the future the invested capital will be freed for reuse.

How to Make Money Trading Rule #2: Act Defensively
As a continuation of our discussion of rule #1, acting defensively with your investing capital means that your money should not ever be exposed to risk simply for the sake of "avoiding missing out" on an opportunity. If a person as a retail trader has seen an equity asset suddenly jump up in price on the NYSE, then that investor needs to realize that the opportunity has already passed them by. The best way to trade a stock that has already moved suddenly is to walk away. Investing defensively requires the day trader to recognize when it's too late to commit their precious capital.

How to Make Money Trading Rule #3: Use Maximum Leverage
When a day trader does find a good opportunity, it is imperative that the trade be made with the maximum practical amount of buying power. In other words, the investment should be purchased with as much leverage as is sensible given the probability of high returns. If a high return on investment is highly expected then it behooves the retail day trader to exert as much buying power as they can reasonably apply to that position, then monitor the position closely in order to unload it as quickly as is modestly profitable.

We briefly mentioned above how fixed term investments such as options and binary options offer a discipline way to invest. Investors with a decent amount of capital should read our how to option trade page for examples of trading by creating your own customized leverage.

Investors with low or small amounts of capital should sign up for our education series on binary options trading, an efficient way for small capital traders to earn high yields when access to leveraged accounts isn't practical.

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