How to Make Money in Stock Investing: 3 Rules for Disciplined Trading

The best way I know of to make money trading stocks is to follow three fundamental rules: invest short, defensive, and with maximum leverage. Today’s retail business environment is very different from the world of Graham, Dodd & Buffett value investors. Today’s day traders rely on getting money invested quickly as the tide rises and then disinvesting on autopilot after reaching a set price point. Retail traders who want to know how to make money investing in the stock market but are not willing to play fast, hard and ruthless will not find success.

Make money on stock investments Rule #1: Invest briefly

The number one mistake retail investors make is holding a stock too long. This is one area where the revered philosophy of Graham, Dodd and Buffett still holds true: People sell winners too quickly but hang on to losers forever. One of the best ways to avoid this type of fate is to use fixed-term investments like options or binary options contracts to remove the variable of when to sell a position. A contract with a fixed expiration imposes discipline on the trader, causing the trader to continually assess the greatest potential profit from continuing to hold a position rather than unloading it. In addition, a fixed maturity ensures that at some predetermined point in the future, the invested capital will be released for reuse.

How to Make Money Trading Stocks Rule #2: Be Defensive

As a continuation of our discussion of Rule #1, being defensive with your investment capital means that your money should never be exposed to risk simply to “avoid missing” an opportunity. If a person as a retail trader has seen an equity asset spike in price on the New York Stock Exchange, then that investor should realize that the opportunity has already passed. The best way to trade a stock that has already moved suddenly is to walk away. Investing defensively requires the day trader to recognize when it is too late to commit their valuable capital.

How to Make Money Trading Stocks Rule #3: Use Maximum Leverage

When a day trader finds a good opportunity, it is imperative that the trade be placed with the maximum practical amount of buying power. In other words, the investment should be bought with as much leverage as is sensible given the likelihood of high returns. If a high return on investment is expected, then it behooves the retail day trader to exert as much buying power as he can reasonably apply to that position, then monitor the position closely to unload it as quickly as it is modestly profitable.