How to Make Money in Stocks by William O'Neil

How do I protect my trading capital?

Use stop-loss orders on every trade, never risk more than 1-2% per trade, diversify across assets, avoid overleveraging, and keep a trading journal.

What are stock options and how do they work?

Options give you the right (not obligation) to buy (call) or sell (put) a stock at a specific price (strike) by a specific date (expiration). Calls profit when stocks rise; puts profit when stocks fall. Options amplify both gains and losses — you can lose 100% of your investment. Start with covered calls and cash-secured puts to learn. Never sell naked options as a beginner.

How risky is trading on margin?

Margin amplifies both gains and losses. A 50% margin account means a 10% stock drop creates a 20% portfolio loss. Margin calls force you to sell at the worst possible time — when prices are already down. Interest costs (6-13% APR) eat into returns. Only use margin if you fully understand the risks and can handle a margin call without liquidating your best positions.

How should I use stop-loss orders?

Set stop-losses based on technical levels (support, moving averages) rather than arbitrary percentages. A common approach: place stops 1-2 ATR (Average True Range) below your entry. Trailing stops lock in profits as prices rise. Avoid stops at obvious round numbers ($50, $100) where market makers hunt for liquidity. Mental stops work for experienced traders; hard stops are safer for most.