The key to successful (and profitable) stock trading is to understand how the market works. If you’re a newbie who lacks the experience and understanding to make educated decisions, then you’re left with two options: guessing (which isn’t a good idea), or better yet — starting out with a few professional trading tips. I, personally, would rather believe that I make my own luck and prefer to try and learn from the best. So, to help me and maybe some of you avoid some costly mistakes, I’ve put together a list of stock trading tips to keep in mind as you go down the road toward successfully participating in the stock market.
Stock Trading For Dummies: How To Profit From Trading
Tip #1: Know how much you can lose and stick with that limit.
Stock market trading is a lot like Vegas gambling, except that you actually have a great chance to win some money. But, smart traders know when they’ve reached their limits and stop before they lose the house, so to speak. The best way to manage your losses is to fund your online broker trading account with the amount of money you are willing to lose to the market. Your account will go up and down based on your successes and failures in the market. The goal here is to make a profit, then move your growing funds to a different, safer account once your balance hits a designated monetary level. But if the opposite happens and your account balance goes down to an uncomfortable level, it should be time to pull the plug for a while. The point here is that you need to set a limit on what you are willing to lose.
Tip #2: Do your homework.
You have to know all about the company you want to invest in like the back of your hand. Not only that, but if it’s relevant, you also need to know the ins and outs of the particular product you want to invest in. You need to understand risk and how it changes from one industry, company or product to another. You need to understand what your potential gain (and potential for loss) is so that you make smart decisions.
Tip #3: Don’t buy stock on a downswing.
A lot of first time investors (and those who are inexperienced) try to time a stock’s downward spiral and buy at the lowest point so that they can make the most profit. The main problem with this approach is that it’s almost impossible to tell when the stock has reached its lowest point, potentially costing you a great deal of cash if it continues to slide. It is much better to buy after the stock shows signs of recovery, even if it means that you lose a few dollars in the process. Make sure though, that you don’t make decisions purely based on the behavior of a stock’s price. Follow the fundamentals and check out the charts and avoid buying on emotion. Rely on strategy — whether its fundamental analysis, technical analysis or a combination of both.
Tip #4: Be wary of technology when placing orders.
Have you ever had a day when your computer just seemed slow? Unresponsive? We all have. The problem is that Murphy’s Law will dictate that this sluggish behavior will occur at the exact moment you are trying to place your buy or sell order, causing you to miss your golden window of opportunity. The other drawback is that sluggish computers make people crazy enough to click the mouse button on the buy or sell button more than once, potentially causing you to buy or sell way more stock than you ever intended. Make sure that you have a secondary way to contact your online discount broker if your computer goes on the fritz during that critical period. Or if you’re bent on becoming a serious trader, think about investing in ultra-reliable trading systems that have minimal technical issues, if at all.
Following these tips isn’t going to make you rich, but not incorporating these tactics into your overall trading strategy will most likely cause you to lose more money than is necessary in the early days. I plan to use them as part of my stock trading strategy in order to hedge against early, greenhorn losses. Drop us a line and let us know what tips you have that are working for you and what advice has failed you miserably.
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