How to Make Profits Trading on the Stock Market

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Each year, hordes of new traders that don’t know how to make profits trading on the stock market come in droves to try their hand at making a quick fortune but end up often being a lot poorer than when they first began. If you want to make high returns and avoid the heartbreak of huge losses in the stock market then you must understand that there are certain key success factors that are fundamental to high performance in the trading the stock market.

First, you must understand that price action is the key to trading profits. Price action is the movement of any security’s price and is visually represented on a price chart. The reason that it is vital to understand price action is that price reveals where the trends are so that you can exploit them for profit.

Whether price goes up or down, bullish or bearish, your ability to spot trends in the stock market is as to profitable trading as water is to fish. Without the ability to understand price action you will never be able to identify profitable trends and, are quite simply, dead in the water.

Next, remember the old trading maxim “the trend is your friend” and keep good company with those trends. Trends can be your best friend as long as you remember to trade in the direction of a stock or security. Otherwise, they can be your worst enemy and it is almost guaranteed that you will suffer a long series of horrific losses if you trade against the momentum of the market.

Know your exit before you entry is the next factor that you must understand at a deep seminal level if you want to gain outsized profits from the stock market. In the movie, “Ronin”, with Robert Deniro, Deniro plays an undercover CIA agent going into a bar late at night after it has closed to meet his contact. Before entering, he goes to the back of the bar, locates the backdoor, places a gun by the exit, and then walks around the front and enters. Later, he explains that he never enters a building without know where the exit is and how to get out. This is good advice not just for the covert spy but for the trader as well.

If you’re going to place a position in any investment then you must know when you’re going to get out if you’re ever going to know how to make profits trading on the stock market. This applies both to profit taking and your exit strategy; if a stock hits a profit target then take profits without any of the mental second-guessing or emotional conflicts of whether to wait and see if it goes even further in your favor or not (many traders have turned winning positions into losing positions simply by ignoring their exit targets too long).

Likewise, if a position goes against you and you end up taking a loss then you must not be afraid to cut loose that position because your scared of taking a loss. Trading is built on small losses while making huge profits on runaway moves because you had the good sense to exit losing positions quickly and ride the home run trades to their fullest potential.

Finally, learn to think for yourself. You learn to think for yourself by putting in the time to learn about price action, how to exploit trends for stock market profits, and knowing when to get out before you ever make an entry. One of the biggest reasons for trading failure, if not the biggest reason, is that beginning traders come into the market without a plan or the training to fall back on because they lack an understanding of these core principles.

write by Mirabel

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