So you have thought long and hard about it, saved your money to invest in stocks, and now you are going to need some stock trading tips. We are going to share with you some investing tips that will save you a lot of heartache and money – if you take them seriously.
One of the first things you need to do is put together a stock trading journal. In this journal, you should have your trading plan, the criteria that you will use for selecting the stocks to buy, and the conditions for selling your stocks. Keep in mind that the rules for selling your stocks will have two different conditions.
The first selling condition is when to cut losses. The second selling condition – which I think is the harder of the two – is when to take profits. There are several reasons for this, but you should define both conditions in your trading plan. So now let us examine these vital stock trading tips.
Controlling Your Emotions – Most Important Of These Stock Trading Tips
We put this one right at the top of the list. If you can’t control your emotions while trading stocks, then let me save you a lot of grief by telling you not to waste your money buying stocks. You might as well take your cash and set it on fire – just to get it over with quickly.
Let me give you an idea of how your trading mindset should be. If you were to watch a professional stock trader during market hours, you wouldn’t be able to tell is he was losing money or winning money on that particular day. That’s the mindset you should have – don’t take it personal.
Keep in mind that the stock market is psychological. People panic and they also get greedy – that’s why the markets go crazy sometimes. And it’s also why most people lose money in the markets too. The unemotional traders take money away from the emotional ones every day. Any list of stock trading tips needs to include this one.
Prepare Yourself For Losses
The typical person that decides to invest in the stock market is usually the one who just got a tip about a stock that is supposed to “take off”. In most cases, they proceed to lose all their money over the following months. This scenario is like a rerun of some old boring movie that is payed over and over late at night on TV.
The problem here is they never plan for potential losses. People do not seem to realize that many trading systems out there have winning percentages under 50%. Even systems that are profitable will have low winning percentages. The reason they win is because their winners make far more money than what their losing trades lose. In other words, they cut losses!
Be sure your list this as one of the more important of these stock trading tips.
Maintain A Long Term Vision
Do yourself a favor and consider stock investing as a long term endeavor. This will go a long way in helping you control your emotions. A long term vision will keep you from getting anxious and keep your expectations at a reasonable level. This needs to be on everyone’s list of stock trading tips.
You want to be in the stock markets over the long haul. To do this, you need to cut your losses quickly and let your winners run as far as they can. Keep in mind that you won’t have very many big winners, but be prepared for when it comes. Just keep cutting loses and taking small profits along the way as you wait. You are just treading water in the meantime. This attitude and vision will make you a winner in the stock market.
Mixing Up Those Stocks
As the old saying goes, the wise man doesn’t put all his eggs in one basket and you shouldn’t either. You’ve probably heard this before – about diversifying your investments. The reason you hear it is because it is good advice.
The stock market is divided into different sectors which are simply classifications of companies in different types of industries. You will find that entire sectors get hot and most all of the stocks in those sectors become hot too. You should most certainly try to own stocks in these hot sectors, but don’t put all of your money into one sector.
As stocks get hot, they become volatile and the prices get inflated. It’s just a matter of time before the bottom falls out and you don’t want your entire stock portfolio suffering this kind of sell off. Good traders find other reliable sectors to balance out the overall risk of their holdings.
Leave Margin Alone
If you don’t know what margin is, that’s probably a blessing. Trading on margin is where your stock broker lends you money to trade with for a small fee. Typically, margin allows you to own around twice the amount of stock as your cash level. So if you have $20,000 in your trading account, then you can actually buy $40,000 of stock on margin.
Margin sounds great, don’t it? It is – as long as you are winning. The problem comes when you start losing. When you lose money on margin, your actual losses are double because your broker is not sharing the losses with you – their cash remains intact. This is the ugly side of using leverage.
It is very common to be hit with a margin call after the stock market has dropped heavily. The margin call means that your loses were so severe that your cash level no longer matches the loan amount – so you have to sell some of your stocks to cover the losses. And when you sell stocks to cover your margin, you are selling them at a loss. So do yourself a favor and just don’t trade on margin to begin with. Consider this as a valuable member of your stock trading tips.
Conclusion
It is my hope that you have a better understanding of what to expect when you begin trading stocks. Above anything else, you need to realize that the world of stock investing is not for everyone. This is not to say that investing isn’t for everyone – I don’t believe that is true – it’s just that everyone has different tolerances for risking their money. And there are many very conservative ways to invest your money, but buying stocks is not one of them in my opinion.
Should you decide to dive into the exciting world of stocks, then ensure that you remember these stock trading tips, they will save you lots of money.