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Two Quick Rules to Help Avoid Losing With Stocks

I want to pass along two quick (but valuable) rules to follow that will save you from losses in the stock market.

1) If the stock market indices have fallen 15%, then odds are a bear market is coming.  This is not foolproof, but historically, when the market is down 15%, it will more often than not get worse, not better.  You will usually see the market slide down to a 20% loss or more (which technically is bear market territory). 

So how can you apply this rule?  If the markets have lost 15%, it is generally not  a good idea to start buying new stocks or adding to your current positions at that time.  Odds are, a bear market is coming.  And these odds are based on past stock market declines of 15% off its highs.  To put numbers behind it, 12 out of 15 times the market has fallen 15%, it went on to fall into bear territory. 

Begin to watch the Dow Jones Industrial Average, S & P 500, and the Nasdaq Indexes even more closely when they fall lower than 10 percent.  That 15% number is a significant number.

2) Do not buy a stock on the day the company releases good news.   This is particularly true with biotech stocks.  You will often see a spike on the news, but then a quick selloff.  The time to buy a stock is before the news (buy the rumor, sell the news) or to wait until the market has sold off the good news.  

While it's ok to hold a stock through a good news event if you already have a position in it, buying or adding to your position when the good news is released is more often than not bad timing.  Bad timing produces bad results.  And timing in the market is everything. 

Part of marking money in the stock market is avoiding losses whenever you can.  By applying these two simple rules, you'll help avoid losses. 

Disclosure: No individual stocks mentioned in article