Reading through William O'Neil's book, 24 Essential Lessons For Investment Success (purchase), he listed 3 steps to successful investing which I found to be a perfect for every type of investor. Do you have all three intact?
I am going to state the three steps (which for those who have the book are on page 66) and then break them down and apply them to everyday investing online. The Three Steps:
- Develop buying selection rules that let you pick the best stocks, and use charts to determine the right time to buy.
- Have a set of selling rules that tell you when to sell and nail down a profit, or cut short a loss to avoid a possible larger loss.
- You need a specific method to tell you when the general market averages are topping and headed down, and when they've finally hit bottom and turned into a new uptrend.
When I read through them initially, I had to pause and think about what Mr. O'Neil was actually hinting at here. He has encompassed some of the most difficult tasks that one investor has to develop to trade successfully, but if accomplished will literally make you millions over time.
Stock Research and Purchasing Stock
Mr O'Neil uses a combination of both fundamental and technical analysis for choosing his best stock picks. He relies on strong companies with great past history earnings and sales growth on the fundamental side, and then combines this with timing of breakout patterns such as the popular cup and handle. His selection rules are the same each time, and always yield to him stock picks that have a high probability of success.
From there it is a matter of timing until he decides to make a stock trade online and take a position. What is important about this step though and what makes it essential is right from the beginning he has a disciplined plan of attack, and knows when to buy for the best shot at success.
Knowing When To Sell
I have expressed this multiple times here on the blog, and I will say it again, selling is the most difficult part about stock trading online. If you do not have written rules that are followed to the point, you will struggle day in and day out with investing in the stock market. As soon as Mr. O'Neil takes a position, he has a established plan of when to sell, take profits, or hold.
I covered a simple post on how to stay clam while trading, and it really applies here. Emotions run high fueled by ego, frustration, anxiety, etc. and without a set of rules of when to step back or simply get out of a position you are setting yourself up yet again for failure.
Following the Overall Market
Did you know that 3 out of 4 stocks follow the overall market trend? If you can't follow the market as a whole, then you are going to automatically lower your chances at making successful trades. In the late 90s everyone was a successful investor, why? Because the whole market was on a huge run up, and every pick was a good one.
Putting it All Together
When it is all put together, what William O'Neil states is that you need to have a set strategy for finding stocks then buying them, followed by knowing when to sell for a profit, and most importantly how to follow the overall market trend.
To do this successfully, there are 5 traits of a successful investor involved:
If you have these traits, then it is up to you to find your answers to proving the three steps for successful online investing. Maybe you will be the next stock market millionaire.