Sunshine, rain, storm and bloom — The Ride (Part 2/3)

Disclaimer: This part contains adrenaline, fear, palpation and happiness. It will touch multiple high and low emotions. Only proceed if you are ready for the ride!

Welcome to the part 2 of my story. It is a 3-part series. [Read Part 1 here: Seed]

“The highs are very high and the lows are very low”

License: CC0 Public Domain

I am sharing all these trade secrets because I have learnt them over a course of time. Unfortunately I don’t see this in any book, so I just want you to prevent any avoidable losses.

I hope after reading through part 1, you have found your seed or got a fair understanding of how seed look like. In this part, I will assume you have some potential seeds which you are interested to invest in. Let’s start the ride…

Before we start the ride, let me introduce you to the rules of the game.

Rules of the game

1. Have an entry and exit policy with every stock you buy:: Eg. “I want to buy MSFT at $150 and exit at $180". “Or I will hold it until it grows”.
2. Don’t be too greedy. I mean it.
3. Don’t put all your eggs in one basket. Try to find 2–3 seeds to invest into.
4. Make an upper limit of your investment. I am not going to invest beyond $XX K. Don’t invest all of $XX K right away, I suggest investing around 80% of that at max. I will explain that below.
5. Stick to the plan. Hold tight. Trust your instincts. It’s gonna be a bumpy ride!

Step 1: Choose your Brokerage account

The Ride begins with a stock brokerage account. It can be Fidelity, Morgan stanley, Chase, Robinhood etc. I would recommend Fidelity. Read about them and compare.

Step 2: Buy Stocks

I would suggest start by buying 2 companies at least. So, that you diversify.

(Diversification is crucial in stock trading. Pick 2–3 sectors — Tech, Pharma, Retail, Construction, Real estate, Resources or Airlines. A good portfolio would be — “AAPL, GLD, LULU” or “GILD, AMD, AMT” or “UAL, SAVE, AMZN, PEP, AMGN”)

Step 3: Stay tune with latest updates

Install a stock news App such as SeekingAlpha (Highly recommended), StockTwits (App: Twitter of Stocks).

I have created a FB group. We discuss US stocks: https://www.facebook.com/groups/1400877513547141

Step 3: The Ride

The ride is the most important part of the stock trading. I define it from — Buying to Selling the stock. It can be a cake walk or super stressful, I will walk you through that (trust me it is not always easy.)

Important tricks:

Add more position — You can reduce your cost basis. Eg. you have 50 stocks at $1, your cost is $50. If it reduced to $25. If you buy 100 stocks more your cost is $50+$50 = $100 / 150 pieces i.e. $0.67/stock. So you are down from $1 to $.67. So you need to meet lower high to reach the break even.

Shorting — Short or sell some of your position not all. We usually short the position when we think the stock is in correction mode once it moves upwards, add more.

Easy

CASE: No issues | “Bloom” —

You bought a stock at $1, It kept increase until $3. Your exit plan was $3 and you sold it. Usually it is not so easy :). Usually Zero touch stock or no-touch stock like MSFT, AAPL, AMD, PEP, PG, JNJ fall into this category.

Medium

CASE: The stock you brought sold off 10% or CASE: The stock you brought published a bad news —

You have to answer a few questions, is this price a trigger in your exit plan? Do you still trust the company? Why did you buy this company — News, Trust, growth?

These answer will help you decide the next move. If you are SUPER POSITIVE: Buy more, SUPER NEGATIVE: SELL and bear the loss, NOT SURE: HOLD IT. (Read through market sentiments on StockTwits App.)

Hard

CASE: You tried to “Add more” position but it fell again

This is one of the hard situations I face. If you believe in the stock (and you have room) — Buy more, If you feel hopeless — Short your position (Sell half of it.) take the loss. Remember when the stock starts to pick up again buy more and stick to “Add more rule”.

CASE: You have reached your $$ max and you can’t go further

Take profits if you think you are heading to 52 week max in a stock. It is usually risky state. As I told you don’t be greedy. It’s okay to cash out. :) Remember we are here to make money!

CASE: When the market crashes everything falls

Don’t sell. Please. This is the time you use your Rule#4’s 20% cash in brokerage account or more and go shopping!

Step 4: Finish

Once you have gone through this roller coaster ride, I hope you have made some $$.

Stick with the Rule#4 of not investing more than you want.

Pro-tip

Transfer profits or cash beyond your Rule#4 max out of brokerage account to Bank account. This way you will know you are making money and not just reinvesting. (If you reinvest, you might loose all your profits when market crashes.)