The THREE Things You Must Do to Be a Successful Investor
By Jared Levy, Editor, Smart Investing Daily
In over 15 years of trading, investing and risk management, I realized the three things that make the real difference between a successful investor and one who struggles have nothing to do with technology, strategy or even a personality type (although some personalities have an easier time applying them).
I mean, when you think about the multitude of successful strategies and investments that are made every day, there may be some common threads between them, but with all the diverse and sometimes conflicting methods used, how can they all be the key to successful investing?
They can’t…
Here are a few smart investing ideas for you to remember:
(And by the way, none of these ideas are the three strategies you have to follow to be truly successful.)
All of these techniques, plus the multitude of tactics and trades that Sara and I offer in Smart Investing Daily, will give you an edge. (That said, if you’d like to receive our advice, sign up for our easy-to-understand investment articles.) But even following these practices I’m sorry to say you can still lose. Because without the following three covenants, you are surely doomed. Let me explain…
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Far and away, the most important thing you can do as an investor is to have an END to your trade, preferably a profitable one! Most novice traders jump into a trade with good intentions, but don’t have a goal to reach.
When you buy any investment, set a target for yourself (be realistic) and once you reach that target (or if the market seems to be changing) exit the trade! Even with all the great techniques listed earlier, they all mean nothing until the profits are booked in your account!
A relatively new “order type” that most brokers offer nowadays is called a trailing stop. It can help mechanize your trade and assist in taking profits for you, especially if you have a hard time hitting the “sell” button. Think of it as a stop-loss order that follows your stock price up, but not down.
Let’s assume I buy a stock at $40 and place a $1 trailing stop below it. If the stock moves up to $45, the stop moves up with it and is still $1 below the current stock price (the stop is now at $44). If the stock drops, the trailing stop locks in place and my stop loss will trigger at $44, taking me out of the trade for a profit! Cool, right?
Call them the “trifecta to profit” or whatever you need to remember them, because they might just save you some dollars.
I have a close friend who has been an extremely successful trader on Wall Street for many years. He has made a living his entire life trading his own account.
He called me on Friday, Sept. 3, to discuss a bullish option swing trade (swing trades usually last one to three days) he had on in CREE. He was up about 20% in the trade in less than a week (which is about 1,000% annualized, but let’s not go there). I urged him to sell it, which he did and he was more than happy with his realized return and that his profit target was reached.
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The day after Labor Day, CREE dropped from $57 to $54 and boy, was he happy. Seeing dollar signs and ignoring his rules, he jumped all in with a position that was twice the size of what he just took off. He did this when the charts were NOT looking bullish at all and ADDED RISK!
On Wednesday, he now had a big problem, because the stock was trading down to $49 and he was long the equivalent of 10,000 shares at a much higher price.
Now the tide shifted – he went from being in complete control to hoping, wishing and praying the stock would move higher and feeling bitter because he just made a great return in the stock. Luckily, the stock rallied a bit and he was able to trade his way out for a little better than breakeven.
The moral of the story is that his first trade was a successful one, because he executed his plan, used good money management (controlled greed), and took a profit when he reached his goal and the stock was looking weak.
The second trade was done in an excited, uncontrolled state of mind with no plan and poor money management.
In your own account, monitor how much money you put into any investment and don’t be afraid to take a profit if you are happy with your returns. There will always be another trade!!!
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About the Author
Jared Levy is Co-Editor of Smart Investing Daily, a free e-letter dedicated to guiding investors through the world of finance in order to make smart investing decisions. His passion is teaching the public how to successfully trade and invest while keeping risk low.
Jared has spent the past 15 years of his career in the finance and options industry, working as a retail money manager, a floor specialist for Fortune 1000 companies, and most recently a senior derivatives strategist. He was one of the Philadelphia Stock Exchange’s youngest-ever members to become a market maker on three major U.S. exchanges.
He has been featured in several industry publications and won an Emmy for his daily video “Trader Cast.” Jared serves as a CNBC Fast Money contributor and has appeared on Bloomberg, Fox Business, CNN Radio, Wall Street Journal radio and is regularly quoted by Reuters, The Wall Street Journal and Yahoo! Finance, among other publications.