The Three Most Crucial Elements To Investing: Discipline, Discipline And Discipline

There's no secret to losing weight. Proper diet and regular exercise are essential, especially for the modern, sedentary lifestyle. But it's so hard because most of us love pasta and chocolate cake. And speaking for myself, exercise stinks. The key, then, is discipline. That means doing things you don't want to do -- like spending 30 minutes on the treadmill -- and refraining from urges that are bad for you.

Investing is the same way. "The stock market is completely counterintuitive," IBD founder and Chairman William O'Neil has said -- more than once. So you haven't bought First Solar yet, perhaps the hottest stock in the market's hottest group, solar power companies. Its last entry was a cup-shaped base, which the stock pushed past over 123.31 in the week ended Oct. 5. It hasn't really tested its 10-week moving average since that breakout, and you're losing patience.What the heck, maybe you should just buy some right here, right? Wrong.

First Solar is nowhere near a buy point. That means you're engaging a higher likelihood of a bad trade -- despite First Solar's outrageously great fundamentals. You aren't buying the stock at that sweet spot, above which there are few sellers and many eager buyers. How many investors do you know who just go by their instincts? How are they doing? Sound investment principles are based on discipline. It's easy to memorize the buy and sell rules. But it's far harder to stick to them when emotions try to take over.

Rule No. 1: Limit your losses to no more than 8% of your buy-in price.
Exceptions? None. So if you bought that stock at 100, and it goes to 92, you must get out. But when the time comes to cut and run, you don't want to sell out, you want to buy more.

Rule No. 2: Don't buy more. Don't average down.
You should be buying solid, high-volume breakouts from valid bases, not slumping issues looking for support.

We hate to admit making mistakes, but if you want to be a serious investor, you must do just that. Regular readers know the rules by now. In addition to the two above:

Stick with stocks that boast great fundamentals.
Buy the leaders in the hottest groups.
Only buy when the broad market is in a confirmed uptrend.
Insist on sponsorship. If the big funds don't want this stock, why should you?

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