Ten golden rules of investment - Business Works
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Ten golden rules of investment

by Gaspar d.'Orey, CEO and co-founder, Zercatto How do professional investors invest successfully in the stockmarket and consistently generate high returns? And how can people new to the investment world do the same?

If you want to join the five percent of people who invest in the stockmarket and make money (as opposed to the 95% that don't), here are my ten golden rules you should follow to trade like an expert, says Gaspar d'Orey, CEO and co-founder, Zercatto.

  1. Stack things in your favour
    Firstly, it's not about luck, it's about knowledge. If you're interested in a stock, do some research into its history and recent performance. But don't stop there: look into wider economic trends and the stock's industry. Does it still look like a winner? Then it's likely to be a good investment.

  2. Cut your losses short and let your profits run
    When you've made a little bit of profit, it can be tempting to sell the stock quickly and cash in. Resist this temptation. Instead, let your profits increase and sell only when you're losing money. Set stop orders (and stick to them) and learn to use trailing stops so your profits can increase over time.

  3. Have written rules and stick to them
    You need to have a strategy if you want to make a profit and it needs to cover three elements at the very least: when to buy, when to sell at a profit and when to sell at a loss. While it's easy to write your strategy, it's much harder to stick to it. But to get the most from the market, you need to remain cool-headed and avoid acting instinctively. A written strategy is an incredibly useful guide when you’re in the heat of the moment - remaining consistent and logical is an absolute must.

  4. Let the market tip its hand
    No one knows the market like the market does, so follow its lead. Don't invest when the market is going against you – only put your money in when your stocks have taken off in the right direction. If possible, make your purchases on the breaks of the most recent peaks. And give yourself the best chance by waiting for a breakout followed immediately by a pullback.

  5. Always let the price dictate your action
    Set targets for buying and selling prices and stick to them. This will help you remain in control of your trades and ensures you have a plan whatever happens. And remember: don't buy or sell just because the chart suggests it's a good time or the indicator gives you a positive signal.

  6. Don't be a sheep
    Don't follow the crowd, follow the experts. The market starts panicking on a fairly frequent basis, setting off a frantic period of selling because people tend to follow the crowd. But don't join them. Instead, do the opposite – people are usually wrong when they panic and act quickly.

  7. Never add to a losing position
    A lot of investors advise following the 'averaging down' rule which advises you to buy more stock when you're in a losing position. But this is nonsensical – if the stock value keeps falling, you're almost certainly going to lose even more money and you will have heavier losses to bear in the long run so don't do it!

  8. The market reaction to the news is more important than the news itself
    Markets react based on what they expect to happen, rather than actual news, meaning they can be wrong. So don't panic when you're waiting for news; instead, let the market reaction guide your actions once the news is released.

  9. Do not try to predict the future
    If you're investigating a new trade or looking into an old one, there's really no point trying to guess what the market will do next. Use your time more effectively by developing a trading strategy that will include what you'll do when different scenarios occur.

  10. If the market doesn't do what you think it should, get out
    Investing can feel like a battle at times. But if the market doesn't make sense and you can't find a solution to the problem you’re facing, it's probably time to close that trade and get out. The market is just too big for one person to fight against.

For more information, please visit: www.zercatto.com.

Note: the views and opinions in this article are those of the author.

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