3 Rules Of Safe Trading Strategies

Morristown, New Jersey (PressExposure) May 27, 2011 -- Rule 1

Never trade with borrowed money.

It's called "leverage" or "margin." These trading strategies use money borrowed from a broker. Some people even max out their credit cards, or take out home loans. Don't do it!

It sounds so tempting -

*Put up only a little money. The broker puts up the rest.

* Make bigger profits. Get returns on the borrowed money as well the investor's own.

Until the roof falls in -

* Losses are multiplied as much as profits. Any loss is much bigger.

* If prices go down, a stock bought with borrowed money is no longer worth enough to be collateral for the loan.

* The broker can demand more money as collateral. That's a "margin call."

* If the investor doesn't have more money, the broker can sell the stock.

* The investor loses almost everything.

* "Margin calls" can cost investors everything.

* Meanwhile, there's interest on the loan.

Buy shares without borrowing, and ride out price dips. Buy shares with borrowed money, and a price dip brings a margin call. The added profit potential is more than canceled by the added risk.

Smart trading strategies are safe trading strategies. Don't use "leverage."

Rule 2

Always take part of the winnings off the table.

At a Las Vegas casino, if someone wins at craps, they might "let it all ride." They keep betting everything they have - what they came with and what they've won. They win big - until they lose it all.

Using trading strategies like a Las Vegas gambler is a recipe for disaster.

People think "big trades make big money." They want to do the biggest trades they can. So they pile all their winnings into their next trade.

* That works until they lose. Then they lose big because they "let it all ride."

But smart trading strategies are safe trading strategies.

* An investor's job is to lower his risk. The lower his risk, the closer he gets to safe money.

The best trading strategies grow portfolios slowly.

* Re-invest part of trading profits. 50% is a good amount.

* Set aside the rest. It will offer safety in hard times.

* Take 50% of profits even if the trade stays open.

* With a $10,000 profit, take $5,000 immediately, and leave the rest invested.

* The $5,000 saved is a cushion against a later fall in the stock.

Rule 3

Don't buy more when the price is falling.

What are some trading strategies when the price falls?

* Panic and sell at once - always bad.

* Hold on and hope - always bad.

* Stick with the Exit Strategy you decided in advance, and sell if and when the price falls that far - smart.

* Buy more - often bad.

Buying more when the price is falling feels smart -

* Lower average cost.

* Get more of a good stock.

But remember that smart trading strategies are safe trading strategies. Buy when the price is falling and increase risk.

* Increasing the size of the position raises risk - automatically.

* The falling price gives negative feedback about the stock even while buying more raises risk.

* "Markets can stay irrational longer than you can remain solvent." ~ John Maynard Keynes.

* Don't assume the stock will bounce back soon. It may not.

Most people buy more of a falling stock because they don't want to be wrong. Don't let ego ruin good trading strategies.

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

About Safe Money Products

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.

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Press Release Submitted On: May 27, 2011 at 1:23 am
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