Gurgle Gurgle

Caught in a whirlpool and being sucked under. No life vest or other device to save you. Gurgle, gurgle. Down you go.

This last couple of weeks in the stock market kinda feels like that whirlpool when you look at your financial statements. Of course, your broker will tell you this is a "normal correction and it gives you a chance to buy more so you can dollar cost average. He could be right about this being a correction, but dollar cost averaging down is 100% wrong. The proper way to average into a financial holding is buy more as it goes up in value, never down.

There is a basic law of physics that applies equally well to many things including the stock market. An object in motion will remain in motion in the same direction until interrupted by another force.

Keeping that in mind before you buy any stock or mutual fund is very important. Just because something looks cheap does not mean it will increase in value because you bought it. Usually there is a compelling story to go with it, but that doesn't mean anything.

How can you know if what you are going to purchase has a chance of going up so you can profit from it? Let's go back to the basic law of physics. Is it going up now? Many professional traders will want to see an equity that has been moving steadily higher for at least 3 or 4 months and rising at the rate of at least 3% per month. They also don't like sky rockets that are going almost vertically as these are too dangerous and many times will fall as fast as they climbed.

You must also protect your capital at all times. Anyone who purchases stock or mutual funds without an exit strategy is doomed to lose his money over time. How? Very simple. You may very easily put a stop-loss order in place that will not allow you to lose more than 10% of your investment. Brokers discourage these as they have to watch them - and you should too. Your stops orders should be placed immediately after your purchase and before you hang up the phone. At the end of each month if your equity has gone up you should move up your open stop loss to lock in any profit that is accumulating.

If you will go back to study the price action of stocks and funds you will see that once an equity starts in a certain direction - either up or down - that course will be maintained for many months and sometimes years.

People hate to lose money, but one of the important rules is never to lose a lot of money. Small losses will not kill you, but big losses can make that gurgle, gurgle sound.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

In The News:

Best Mutual Funds And ETFs Score Big Gains  Investor's Business Daily
Dumped mutual funds? It’s a bad idea  The New Indian Express

When Should I Sell?

People are always asking me when should I sell my... Read More

Buy and Hold Investment Strategy

"Buy and hold" is one of the most heralded investment... Read More

Bull or Bear?

Cat or dog? Maybe Zebra. Shucks, I don't know, but... Read More

Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market

In a previously written article, we expanded the use of... Read More

Size Counts!

What the heck am I talking about?It is often said... Read More

Buying Mutual Funds

It looks like the market is ready to start up... Read More

Investing in Trash Company Stocks

Refuse is a serious issue in any society, about as... Read More

I Love To Lose Money

Well, not really. What I mean is I don't mind... Read More

The Stock Trading Plan - Why You Must Have One To Trade Successfully

This is the continuing story of our two imaginary traders,... Read More

Stock Market Education; Day Trading for Beginnners; How to Pick Stocks

The trading method you employ to approach the stock market... Read More

Long Term Financial Vehicles

Investing in long-term financial vehicles give you the most gains... Read More

Dont Buy Worldcom! A Guide to Wise Bottom Fishing

Over the past few months, several investment professionals have brought... Read More

Forces that Move Stock Prices

Among the largest forces that affect stock prices are inflation,... Read More

Trade Stocks for Real

I read a comment by a forum member on another... Read More

What is a Mutual Fund?

Ever wondered what is a mutual fund? A mutual fund... Read More

Market Experience of a Naïve Stock Operator

Sometime in the third quarter of 1997, someone told me... Read More

An Old Proverb for Investing

"If you don't know where you are going, any road... Read More

Pathways

During our travel down life's path we come to many... Read More

Investing in Dividend Paying Stocks

I was recently interviewed for a press release through a... Read More

How To Buy And Hold

One of the most believed bits of conventional wisdom from... Read More

Learn to Calculate a Stock?s Pivot Point

Stocks breakout from properly formed bases everyday but many investors... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

The Value of Stocks of a Company

The debate rages all over Eastern and Central Europe, in... Read More

Protectionism

First let's see what protectionism is. According to Mr. Webster... Read More

Struggling Stocks, Booming Commodities

04/28/2005NASDAQ dropped -12.5% year to date in 2005. S&P500 index... Read More