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I believe when we first came to this country,
most of us chose to go to school to learn first before finding a job.
Some went to adult school to learn ESL and a skill. The luckier ones went
to college. I personally think it is a good idea to learn first before
doing anything. The learning will make it easier to find a high paying
job and a better chance of being promoted to a higher position. I was one
of the lucky guys to have a chance to go to UCLA
and earned my B.S. degree in 1986.
Learning is essential to prepare ourselves for a
new task. However, when investing in the stock market, most of us neglect
the learning process and jump right in the market, myself included. I was
high flying in the golden era of the stock market in the 90’s. At the
turn of this century, I realized learning is essential in anything, stock
investing and job hunting included.
I know some people got lucky and made a lot of
money in the stock market during the 90’s. When the market ran out of
steam and began its down trend in the year of 2000, their luck also ran
out. As a result of it, they gave back all of their profit plus interest.
The down trending stock market at the turn of this century terrifies a
lot of amateur investors. Most of them are horrified by the market and
withdraw completely from stock investment. I was also scared of the
market temporarily. However, common sense tells me if there is loser on
one side, there must be winner on the other side. The trick is finding a
way to be on the winner side and I will be in good shape. I began to look
for a way to learn how to invest.
When I talk about the need to learn how to
invest, the most common feedback I get is there is no secret about
trading stock profitably; all we need is buy low and sell high. The
problem is how low is low and how high is high? Low and high are relative
terms, in my opinion.
Let’s talk about Lucent Technologies (LU); a
high flying stock in the 90’s once traded in the $80 range. When LU stock
dropped to $20 range, many people thought it was low so they bought it.
We all knew LU continued to drop below $5. So was $20 low or high?
When Goggle Inc. (GOOG) made its IPO debut in
August 2004, the stock started at $100, a relatively high price for an
IPO. Shortly after the market opened Goggle stock shot up over $100 and
never looked back. When I write this article, Goggle stock is trading at
the $650 range, a significant gain in a little more than 3 years. So was
the IPO price of Goggle stock at $100 high or low?
Before learning, I had to do a lot of researches
by reading investment magazines, newspapers, watching TV and listening to
radio for so called “expert” advices. There were a lot of labor involved.
After my investment education, I learn the
following tasks, among others:
01.
Find fundamentally strong stock for bullish
trade and fundamentally weak stock for bearish trade.
02.
Ability to read the Candlestick Chart.
03.
Buy stock at a discount price and get paid for
the purchase.
04.
Sell stock at an inflated price and get paid for
the sale.
05.
Make time, one of the most crucial elements in
option trading, to be my ally.
06.
Buy/sell a combination of call/put, two most
powerful option trading vehicles.
07.
Take advantage of all three market conditions:
up, down or sideway.
08.
Correct a bad trade using option trading
techniques to minimize loss or even make profit if the trade does not go
my way.
09.
Stock market is one of a few markets where
people can sell without even owning the stock. I learn how to take
advantage of people greed by using this beautiful leverage.
10.
Wall Street is one of a few places where people
willingly sell their merchandise for a loss. I learn how to take
advantage of people fear by understanding the psychology of the crowd.
11.
Money management skill so I can still make
profit even if I am right less than 50% of the time.
12.
Emotion control. In my opinion, this is the most
important and difficult task of all.
After my stock and option investment education,
I found out there are more than one way to trade the stock market
profitably, among them:
·
Buy low sell high: This is the most popular
bullish trade and is probably the only way amateur traders know.
·
Sell high buy low: This is a bearish trade
commonly known as “shorting” the stock. I personally think it is too
risky to short a stock. I would rather sell short a call option or better
yet, trade a bear call credit spread to protect myself from a huge loss
just in case I am wrong.
·
Buy high sell higher: Jumping in the “up
elevator” and ride to the top.
·
Buy high sell low: Apparently, this is not the
way to start a trade. It is mathematically impossible to make profit for
this trade if we do not do anything between buy high and sell low. This
is a “plan B” trade in case “plan A” doesn’t work. With skillful option
trading techniques between buy high and sell low, we can minimize the
loss and in some cases, even pull out a profit for the trade. This is one
of the Correcting A Bad Trade techniques.
Emotion control, knowledge, experience and patience are essential in
executing this task.
·
Buy/sell call/put: With skillful buy/sell either
single or multiple call/put option techniques, we can make profit even if
the stock going nowhere. This technique requires extensive stock/option trading
knowledge and the ability to read the chart.
The learning process costs money and time. It
definitely needs patience along the way. It is a relatively expensive
process in term of money spent and time involved but I think it is worth
because the learning truly makes my trading a lot easier. I look at it
this way: After learning, I take the L, or the Labor, out of my trading
and begin my earning.
To learn or not to learn? The choice is mine and
I choose to learn. If we think the
tuition for our education is expensive, consider the price we pay for our
ignorance. I think this statement is particularly true in stock trading
business.
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