3 Essential Steps to Successful Investing Online

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:

  1. Develop buying selection rules that let you pick the best stocks, and use charts to determine the right time to buy.
  2. 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.
  3. 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:

  • Discipline
  • Patience
  • Dedication
  • Guts
  • Perseverance

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.

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  1. says

    Blain, according to your trading experience, what would constitute a good exit strategy?
    I would say that as long as the reason why you bought the stock is in place (profit, growth, management team, economic condition, etc), you should hold the stock. When an important factor is changing, then it is the time to think about something else.

    Some people based their strategy on a fix yield (let’s say 20%). Each time that a stock reach this yield ,they sell it. It’s a pretty easy method to use but you might miss a lot of profit along the way.

    What are your thoughts?

  2. Mikel says

    They say that tyou should not buy without knowing your sell. Does this mean that when you place your buy order, you go ahead and put in a GTC sell order at the specified target then just let it run on auto pilot? will this work?

  3. says

    Good Question. My selling strategy is based on technicals really since I have a weigh heavier on them versus fundamentals. I like to keep stops anywhere from 3 – 8% below my purchase price, and raise them as the stock goes up accordingly. I typically don’t hold positions for long periods of time though.