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 a game of chance instead of using a strategic approach. Without preparation, luck plays too big a role.
By learning the right investment methods, you can reduce the risk of loss. A proven system shifts outcomes from chance to probability, increasing your chances of success. With a strategy that wins 70% of the time, you rely on skill, not luck. Without a plan, long-term losses are almost inevitable.
Recently, we identified several strong-performing American stocks that follow proven trading strategies—not random picks—highlighting the power of a disciplined approach.
The guidelines on how to invest in the stock market:
Never invest in a stock without know how to set Stop-Loss
Will these tips guarantee you always win? No. That’s why setting a proper Stop-Loss is essential in any investment strategy. A Stop-Loss helps limit losses by exiting a trade if it moves against you. Many investors struggle with applying this tool correctly, which is why this article explains the basic rules of effective investing strategies.
Read More: Best Investment Options: Stocks, Bonds, or Real Estate?
Sometimes, a stock triggers your Stop-Loss only to rebound shortly after—Airbus experienced this recently. This “false exit” can be frustrating but is normal. The market often pushes investors out before a rise. Don’t see this as failure; staying disciplined with your strategy is key. Most Stop-Loss triggers signal further decline, but when the stock aims to recover, it usually offers new buying opportunities, just like Airbus. Beginners often get stuck here due to a lack of proper market knowledge early on.
Do not invest more than 10-15% of your portfolio in a security
Two main reasons stop-losses are often ignored, even when investors know how to use them.
First, applying a stop feels like admitting failure. Pride and ego kick in—no one wants to admit a loss, so they hold onto losing positions, convincing themselves they’re “long-term investors” or waiting for a bounce. This mindset leads to bigger losses and damages your confidence. Changing this attitude is crucial before moving forward. We’ll discuss long-term investing separately.
Second, many investors struggle to accept uncertainty. No strategy guarantees 100% success. To manage risk, never invest more than 10-15% of your portfolio in one stock. Smaller positions limit losses if a stop-loss triggers, making them easier to handle. If the trade succeeds, you still benefit from letting profits run. This balanced approach keeps your portfolio safer and your mindset clearer.
Diversifying is the key to investing in the stock market
Diversification also means spreading investments across different sectors—not just different companies within the same industry. For example, holding 15% of your portfolio in multiple banks like Santander, BBVA, Bankia, Bankinter, Sabadell, and CaixaBank isn’t true diversification since they all move with the banking sector. If the banking sector drives the Ibex, it’s wise to limit your exposure to a maximum of 15% in that sector. Instead, focus on the strongest stock with the best entry signals—such as Bankinter—to optimize your investment strategy.
Do not put all the eggs in the same basket
Why is diversification so important? Simply put, it’s about managing risk through mathematical probability. To achieve good returns in the stock market, spreading your investments across different assets is essential. Imagine betting on sports: if you always bet on one favorite team, your risk is high—losing means losing everything. But if you split your bets evenly across six top teams, losing one or two won’t wipe you out. You’ll have more wins than losses overall.
Bookmakers set odds to ensure long-term profit, but this principle applies to investing too. Diversifying helps balance risk and increases the chances of steady gains over time.
Always invest in bullish values, never in bearish
We know diversification and stop-losses are key. So, how do you actually invest in the stock market—and which stocks should you pick? The answer: focus on bullish candles. But what exactly is a bullish candle? It’s a stock showing consistent upward movement—whether over three days, a week, or a month.
Choosing which bullish stocks to buy depends on your risk tolerance. For example, a stock that started at \$120 and now trades at \$2 isn’t truly bullish, even if it rose from \$0.75 to \$2. These are often “bearish” stocks—companies with debt, poor management, and declining business, driven by hype and news.
Beware: “Easy money” from bearish stocks often traps investors, leading to losses over time. Avoid these stocks or at least follow strict stop-loss rules.
Instead, focus on the most bullish stocks—those breaking historical highs month after month. These offer better chances of positive returns. Just as it’s wrong to assume a stock can’t fall further because it’s already low, it’s equally mistaken to think a stock can’t keep rising just because it’s near its all-time high. Now you’re better equipped to invest for solid returns.
Avoid investing money in time frames (LP, MP, CP)
Investors often justify holding onto losing stocks by claiming a “long-term” strategy, especially when they miss applying stops at the right time. But if predicting a stock’s movement over a week is tough, forecasting two years ahead is even harder.
Your time frame should align with the candles you use in your strategy. Weekly or monthly candles mean stops and profit-taking can take weeks or months. Daily candles require quicker decisions, and shorter time frames demand even faster action.
Not having a clear price target and trailing your stop as the price rises is a valid approach—but that doesn’t mean you’re automatically in for the long term. It simply means you’re waiting for an exit signal.
Forget fixed time frames. You won’t know exactly when your target price will hit—it could be days or months. And if you skip applying stops, don’t justify it by calling it a long-term hold. The key to successful investing is sticking to a solid strategy with disciplined stops. When done right, winning becomes inevitable.
Avoid investing money based on the news
Investing based on news is a common mistake. When a stock jumps 30% in days and positive news follows, many small investors rush to buy—only to see the price drop shortly after.
Why does this happen? Because the “sharks” who owned shares before the surge sell to these new buyers, locking in profits at higher prices. This pattern causes many to lose money chasing news-driven spikes.
The stock market saying, “buy the rumor, sell the news,” perfectly captures this dynamic.
Sometimes, the opposite occurs, like with Prosegur in December, when despite strikes and no agreements, the stock continued rising. Still, relying on news for investment decisions is risky.
Avoid news-based investing. Headlines often serve insiders’ interests. Instead, focus on technical analysis and fundamental research to make smarter, more informed investments.
Frequently Asked Questions
How do I start investing in the stock market successfully?
Start by educating yourself on market basics, set clear goals, diversify your portfolio, use stop-loss orders to manage risk, and invest consistently with a well-defined strategy.
What is the importance of diversification in investing?
Diversification spreads risk across different sectors and assets, reducing the impact of any single loss and increasing the chance of steady returns.
How do stop-loss orders help in successful investing?
Stop-loss orders automatically sell a stock when it drops to a set price, limiting losses and protecting your capital during market downturns.
Should I invest based on news or market rumors?
Avoid investing solely on news or rumors. Instead, rely on technical analysis and company fundamentals to make informed decisions.
What kind of stocks should I focus on?
Focus on bullish stocks with consistent upward momentum, preferably those breaking historical highs, while avoiding risky bearish stocks that may have poor financial health.
How long should I hold my investments?
Investment duration depends on your strategy and the time frame of your analysis. Avoid rigid timelines—focus on exit signals and stop-loss triggers rather than arbitrary holding periods.
Can I rely on long-term investing without using stop-losses?
Using stop-losses is essential to protect your investments, even in long-term strategies. Ignoring them can lead to larger losses and missed opportunities.
How much of my portfolio should I invest in a single stock?
Limit individual stock investments to 10-15% of your portfolio to reduce risk and make losses more manageable.
Conclusion
Successful investing in the stock market requires more than luck—it demands discipline, strategy, and knowledge. By diversifying your portfolio, applying stop-losses, focusing on strong bullish stocks, and avoiding impulsive news-driven decisions, you can significantly reduce risks and improve your chances of consistent profits. Remember, investing is a long-term journey shaped by smart choices, patience, and adapting your strategy as the market evolves. With the right approach, you can confidently grow your wealth and achieve lasting success.