Investing Strategies - 4 Mistakes That Can Doom Your Investing Strategies

May 25, 2011 - PRLog -- Mistake 1 - Buy Long Only
Prices go up. Prices go down. Prices go sideways. Investing strategies that work only when prices go up will be losers.
* Up-only investing strategies win only about a third of the time.
* Investors need strategies for down markets and sideways markets too. Here are some easy to learn ways to do it:

In a down market -
* Sell short.
* Buy inverse ETFs. These go up when prices go down.
* Buy put options and other option strategies for down markets.
* Buy "hedges" - what goes up when the rest goes down.

In a sideways market -
* Use non-directional option strategies.
All this may sound scary, but it's easy. All that’s needed is a little coaching.

Mistake 2 - Fight the Trend
Stock prices can trend up or down. They can drift sideways. When there is a trend, go with it.
* Buy long in an up trend. Sell short in a down trend. Prices go up and down even when there's a trend. Prices always wiggle.
* An up trend means up moves are bigger than down moves.
* A down trend means down moves are bigger than up moves.

Many would-be scalpers fight the trend.
* They try to sell before the brief downs in an up trend.
* They try to buy before the brief ups in a down trend.

Don't do it! Here's why -
* Price moves against the trend are smaller than price moves with the trend.
* Down moves in an up trend are smaller. Up moves in a down trend are smaller.
* Fighting the trend means chasing smaller profits.
* Few people can time the brief moves inside a trend. Don't try.
Smart investing strategies follow the old saying "the trend is your friend."

Mistake 3 - Buy Without Knowing Why
Most people buy without knowing why. They get a hot tip from a pal. They see a TV report. They read a story. But investing strategies take research.
* What will move the price?
* When will this happen? How long will it last?
* How big will the price move be?
* What could throw off the plan?
* What is the chance of success?

Ignoring these questions raises risk.
* Don't ask questions after buying. Ask before.
* Take time to think. A decision made in mere minutes is risky.
* Get good advice. Do as much research for investing strategies as for a new TV or computer.

Mistake 4 - Give Back Profits
What should investors do after they go into the black? Never let a paper profit turn into a loss.
* Protect trading capital - the number one goal of investing strategies.
* Strategies that reduce risk are the long-term winners.
Trailing stops are the best way to exit with a profit.
* Place a trailing stop order right after buying.
* The broker sells if the price falls to a pre-agreed price.
* Sell before losing no more than 3% of total trading capital.

Trailing stops move up as the price rises.
* For example, buy a stock at $50 with a 10% trailing stop, then sell if the price falls to $45 ($50 - 10%).
* If the price rises from $50 to $60, sell at $54 ($60 - 10%).
* Trailing stops never fall, even if the stock price falls.
* Keep at least $6 profit ($60-$54) if  the stock rose to $60, even if it fell after that.
Trailing stops get investors out before profit vanishes. That keeps a profit from turning into a loss.

Find out more about investing strategies at http://safemoneyproducts.com/investing-strategies/. Subscribe now at http://safemoneyproducts.com/subscribe to get 4 Free Reports and bi-monthly Action Alerts.

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Safe Money Products, written by Dr. Bob Rubin, is a financial newsletter. Bob’s investment philosophy is to buy assets with both strong growth potential and limited risk. Bob researches both commonplace and little known investment opportunities. Visit http://safemoneyproducts.com for more information.