Trading stocks is one of the most exciting ways to make money because it allows you to make money from the success (or failure) of publicly traded companies. Nonetheless, you’ll be amazed by the volume of sad tales you’ll hear from people who have attempted trading stocks only to lose a substantial part or all of their trading funds.
The reason many people lose money when trading stocks is that they often base their trading decision in whims, feelings, and on what others are doing. However, I posit that trading stocks could be highly profitable, interesting and educative if you approach it with the right mindset. This piece seeks to explore 5 simple stock trading tips everybody should know.
Diversify, Diversify and Diversify Some More
Diversification when trading stocks means that you fill your trading portfolio with different stocks from different sectors of the economy. For instance, you’ll buy a number of stocks from technology, e-commerce, oil & gas, biotech, and retail in order to ensure that tailwinds in one sector of the economy does not cause you to record severe losses.
An important point to know when trading stocks is that diversification ensures that you are alive to play another day even if you make the occasional wrong trading decision. Nonetheless, you might rebalance your portfolio regularly by moving more money into higher performing sectors in order to record greater ROI.
Manage Your Emotions or You’ll Lose Money
Managing your emotions is probably the single most important skill you’ll need to master if you want to trade stocks profitably. Many traders will tell you that know the right course of action (to buy or sell) on a particular trading decision but somehow come short of doing the needful until it was too late.
Hence, they’ll fearfully cut their winners short by selling once they record some gains. That fear will incapacitate them from cutting short a losing trade in the hopes that the stock will experience a turnaround until stock losses all of its value. However, you should be able to approach your trades with the detached objectivity by not allowing your emotions to get in the way of your trading decisions.
Invest in Your Education: Don’t Buy Stocks Based on Tips
If you want to succeed in trading stocks, you should be ready to invest in your education and learn all you can about different stock trading strategies. Many people erroneously assume that the simple concept of buying low and selling high could be successful applied when trading stocks.
However, the fact remains that you can never really know when a stock is trading at a low or high price unless you have invested in a stock education. In addition, you should not buy or sell stocks based on tips from the “Pros” “Gurus” and “Experts” because you’ll mostly be speculating and you’ll never be able to develop a profitable trading strategy if you are constantly flipping stocks based on whims.
Find the Best Broker that Fits Your Trading Style
Another important key that will assist you in your stock trading activities is to find a broker whose policies fit your trading style. Brokers (online and offline) will normally charge you a transaction fee for your buy/sell trades. However, if you tend to make a large number of trades within a relatively short period, it might be in your best interests to seek out a broker that charges a relatively low transaction cost.
You need to understand that the transaction costs that you pay will be deducted from your trading funds or from the profits you make from a trade; hence, it is essential that you keep transaction costs below reasonable limits in order to obtain better margins from your trades.
You Can Profit in Both Bull and Bear Markets
When people trade stocks, they are usually concerned about how to make profits when the price of a stock is going up. However, an often-overlooked fact is that you can also make money when the price of a stock is going down.
In fact, most of the times when you trade stocks, you’ll make your profit when you buy the stock and not when you sell the stock. Someone that bought a stock when it was trading for R5 per share will make more money than someone who bought the same stock for R10 per share if the stock price should rise to R15 per share.
Hence, instead of running away from stocks that are recording losses in their share prices, you may want to conduct due diligence that would uncover unique opportunities to purchase the stock at a discount.