Good investments in stock assets have a structure in common. Regardless of the size of the invested capital, the sector or market in which the investment is going to be made, the time that you dedicate to this activity, if you are a short, medium or long-term investor, increasing capital consistently requires the application of certain principles.
Let's start with the definition of consistency. Consistency is the progressive increase of the capital invested by the regular practice of a system. Let's analyze this definition a bit.
1. If you increase your capital but DO NOT apply a system, there is a 95% probability that your result will be short-lived.
2. The system must be applied on a regular basis and requires a number of operations to produce results. Most people reject or change their system when they have two or three losing positions online. They do not give you the space necessary to generate the expected profits.
3. All systems have winning and losing positions. It is impossible, even with the best of systems, to avoid losses. There are systems that only win 40% of the time and still produce positive results.
This approach to the market is far from the way most people have their first contact with the world of stock investing. It is common to find people in the market with little knowledge of it, buying and selling what the channels or financial newspapers recommend. If you plan to constantly increase your money you must do much more than this.
In reality, it is a trip that to be successful must have at least the following scales:
1. Education
2. Set objectives
3. System
Education
The first step is to acquire the necessary knowledge of the market in which you plan to make your investments. Would you buy a house blindly? Without knowing its location, services, access roads, size, etc.? Probably not. Then you also shouldn't go into a market that you've only heard about from a close friend. Education is then the first step.
Knowing the general characteristics of the market, the type of operations that you can carry out, the degree of leverage that you can use, fundamental analysis, technical analysis, the determinants of the psychological factor, among others, will give you a great advantage to successfully start your journey made consistency.
To establish objectives
What do you plan to achieve with this new activity? You want to increase your income or achieve the long-awaited financial freedom and never depend on your job again. What should your rate of return be in a great year, a not so good year, and a negative year?
Setting goals is the scaffolding for the next scale: your system. You will determine the time you are going to dedicate to your investments, if your system is short, medium or long term, the maximum risk that you will tolerate, etc.
System
It is the navigation chart in the world of investments. Similarly it is a business plan. It establishes what you should do when faced with a certain situation. A system allows us to have more options because it analyzes the positive and negative scenarios of an investment in advance.
The minimum characteristics of a good system are:
1. Entry conditions
2. Size of investment
3. Negative scenario
4. Profit taking
Entry conditions: the system must say exactly at what point to enter the market. Here, technical and fundamental analysis comes to play an important role. What indicators or oscillators determine when the input signal exists?
Investment size: It is vital to define the amount of money you plan to invest. If you over-risk a single position that goes against you, you can exit the game.
Negative scenario: under what circumstances do I recognize that this position will not work in my favor?
It may be that you have reached a low, a trend line, a support, an oscillator went from being overbought to oversold, etc. This is the Stop and if it is reached, the position is immediately liquidated.
Profit taking: When a position works in your favor, how am I going to capitalize on those profits? I define a Target or I prefer to use a Trailing Stop.
These elements are essential for your system to be profitable. Review them and if you still do not practice them, plan how to implement them regularly in your investment system.
