Many believe they know how to invest in the stock market, yet over 80% of investors lose money. This happens because they treat investing like gambling, relying on luck instead of strategy. Without proper preparation, chance dominates outcomes.
By learning the right investment methods, you can reduce the risk of losses. A solid system shifts results from pure chance to probability, increasing your chances of success. A winning strategy aims to succeed in at least 70% of trades. Unlike gambling, investing requires clear rules and a plan—without them, long-term losses are almost guaranteed.
Recently, some U.S. stocks performed exceptionally well early this year. These picks were carefully chosen based on proven trading strategies, not random guesses.
The guidelines on how to invest in the stock market:
Following these tips won’t guarantee constant wins. That’s why setting a proper Stop-Loss is crucial for every investment strategy. A Stop-Loss helps limit losses by automatically exiting a trade if it moves against you. Many investors struggle to apply this correctly, which is why this article explains the basic rules of effective investing strategies.
Sometimes, a stock may trigger your Stop-Loss only to surge shortly after—Airbus experienced this recently. The market often tries to push you out just before a rise. This is normal and shouldn’t be seen as a failure. Sticking to your strategy is key, even if it doesn’t work every time.
Missing a Stop usually signals the stock will continue dropping, while rising stocks often offer new buying opportunities, as Airbus did. New investors frequently get caught in these scenarios due to a lack of proper stock market knowledge early on.
Read More: What Does Investing in the Yield Curve Chart Mean?
Do not invest more than 10-15% of your portfolio in a security
Two main reasons explain why many investors avoid using Stop-Losses, even when they know how.
First, applying a Stop-Loss feels like admitting failure. It challenges your ego, making you feel like a loser, so you convince yourself to hold the position “for the long term,” despite losses. Sometimes, you over-invest in a stock based on a tip, hoping it will bounce back, but this only deepens losses. This mindset can be costly, and changing it is essential before moving on to true long-term investing.
Second, even the best strategies aren’t guaranteed winners. Never invest more than 10-15% of your portfolio in a single stock. Smaller investments limit potential losses when a Stop-Loss triggers, making it easier to accept and manage risk. If the trade succeeds, you can hold on for greater gains without jeopardizing your entire portfolio.
Diversifying is the key to investing in the stock market
Diversification also means avoiding concentration within the same sector. For example, holding 15% of your portfolio spread across Santander, BBVA, Bankia, Bankinter, Sabadell, and CaixaBank isn’t true diversification since all belong to the banking sector. If the banking sector drives the Ibex, it’s wise to limit your exposure to 15% for that entire sector. Instead, focus on investing in the strongest stock with the best entry signals, like Bankinter, to optimize your portfolio.
Do not put all the eggs in the same basket
Diversification is crucial because of simple mathematical probability. To achieve good returns in the stock market, spreading your investments reduces risk. Think of it like sports betting: instead of betting everything on one favorite team, placing smaller bets on six strong teams lowers your risk. If one team loses, you still have others winning, increasing your chances of overall success. Bookmakers set odds to favor losses on single bets, but diversifying your bets—or investments—improves your long-term results. This principle applies equally to investing.
Always invest in bullish values, never in bearish
Now that we understand the importance of diversification and using Stop-Losses, the next question is: how and where should we invest? The key lies in focusing on bullish candles—stocks showing consistent upward movement over days, weeks, or months.
However, the risk depends on the stock’s history. A stock that started at \$120 but now trades at \$2 isn’t truly bullish, even if it rose from \$0.75 to \$2. These “bearish” stocks often suffer from debt, poor management, or declining business and tend to react strongly to news.
Beware of the quick gains bearish stocks may offer—they can lure you in but usually lead to losses over time. Avoid them, or at least stick to solid stop-loss rules if you do invest.
For safer bets, focus on stocks that consistently hit new highs month after month. These show stronger momentum and better chances of positive returns. Assuming a stock won’t keep rising because it’s near a historic high is as mistaken as thinking a stock can’t fall just because it once traded much higher. Now you’re better equipped to invest wisely and seek good returns.
Avoid investing money in time frames (LP, MP, CP)
Investors often justify holding a stock longer by calling it a “long-term investment,” especially when they fail to apply Stop-Losses on time. However, predicting a stock’s performance months or years ahead is even harder than forecasting its movement next week.
Your investment time frame should align with the candles you use in your strategy. Weekly or monthly candles mean stops or profit-taking may take weeks or months. Daily candles require quicker decisions, as holding for months rarely fits a daily strategy. Shorter time frames demand even faster actions.
Not having a fixed target price and trailing your Stop as the price rises is a valid approach—but this doesn’t mean you’re automatically “going long.” It simply means you haven’t yet received an exit signal.
In essence, forget rigid time frames. Your target could be hit in days or months. If you skip applying Stops and justify it as a long-term hold, you’re fooling yourself. Investing successfully means using the right strategy and discipline, which will ultimately lead to winning results.
Avoid investing money based on the news
Investing based on news is a common mistake. A stock might jump 30% in days, followed by positive headlines—prompting many to buy in. But often, the price then drops.
Why? The “sharks,” who bought early, sell their shares to cash in gains, leaving late buyers with losses. This chase after news-driven spikes causes many investors to lose money repeatedly.
The stock market saying “buy the rumor, sell the news” captures this perfectly.
Sometimes, the opposite happens—like Prosegur, which climbed even after negative news about strikes.
Still, avoid news-based investing. Headlines often serve those with insider advantages. Instead, rely on technical analysis and thorough fundamental research before investing your money.
Frequently Asked Questions
What is the best way to start investing in the stock market?
Start by educating yourself on basic investment principles, diversify your portfolio, and use risk management tools like Stop-Loss orders. Begin with stocks showing consistent upward trends and invest only what you can afford to lose.
Why is diversification important in stock market investing?
Diversification reduces risk by spreading your investments across different stocks or sectors, preventing heavy losses if one investment performs poorly.
How do Stop-Loss orders help in successful investing?
Stop-Loss orders automatically sell a stock when it reaches a certain price, limiting potential losses and protecting your capital in volatile markets.
Should I invest based on news or market rumors?
Avoid investing solely based on news or rumors. Instead, rely on technical analysis and company fundamentals to make informed decisions.
How do I identify a good stock to invest in?
Look for bullish candles showing consistent price increases over time, strong fundamentals, and positive market trends rather than chasing short-term gains.
What role does time frame play in stock investing success?
Your investment time frame should match your trading strategy. Short-term strategies require frequent monitoring, while long-term investing needs patience and discipline.
Can I guarantee profits in the stock market?
No investment guarantees profits. However, using a disciplined strategy with diversification, Stop-Losses, and proper research significantly increases your chances of success.
Conclusion
Successful stock market investing demands a clear strategy, discipline, and risk management. By focusing on diversification, using Stop-Loss orders, and choosing strong, consistently performing stocks, you can reduce risks and improve your chances of steady returns. Avoid chasing quick gains driven by news or rumors, and align your investment approach with your time frame and risk tolerance. With patience and informed decisions, you can confidently navigate the market and build lasting wealth.