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A clever stock trader is one who is neither excessively prudent in his decisions to buy and sell nor overly spendthrift. Maintaining a sound balance between taking a decision when stock performance is good and going with intuitive intellect and buying when a rise in stock price is eminent is what is needed to get you ahead in this game. Below, we list a few tips that may provide a bit of insight on how to become a better and more successful stock trader. Learning how to become a better stock trader is an endless journey. No real stock trader made his millions overnight. These few tips will hopefully add a bit of value to the acquired knowledge and inherent accumen of the avid stock trader.
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Tip 1 – Have a Trading plan
Many people who have attempted their hand at the stock market have fell short because of personal recklessness and an inability of not knowing when to stop. A trading plan, designed and signed by you, is the first step in ensuring a successful and prosperous future in the buying and selling of shares. Assess your risk profile, think carefully about what your financial limitations are, design your trading plan and stick by it religiously. A few factors that you may want to consider when designing your plan are:
1) What types of stocks are worth considering?
2) At what share price are you prepared to buy a stock at?
3) What portion of your trading account are you prepared to spend on a single trade?
4) If you’re going to buy a particular stock, what are the mitigating factors that make it a smart buy at that point?
5) What is your expected rate of return?
6) How much loss you’re prepared to make and at what minimum price are you prepared to sell the stock at?
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Tip 2 – Do Not Act on Impulse
There are few people who have benefited from impulsive purchase or sale. In most cases, the retrospective market trend is a good indication of how stock will perform going forward. The worst thing to do is imagine that your personal insight on stock performance is a step ahead of the market trend and then acting on your impulse. Caution before emotion!
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Tip 3 – Be in Touch with Current News
Stock markets fluctuations can depend on a number of various factors. These factors include things such as industry news, specific company news, economic news and upcoming financial statement and earning reports. The more clued up you are on your company and its industry, the better chance you have of making an informed decision.
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Tip 4 – Take Time to Assess Your Stock Trades
This tip ties in with tip no 1. Impulsive purchasing is often spurred on by a continuously good performing stock. Although it could be beneficial to you to take advantage of a booming stock, it’s good to occasionally throw a bit of caution to the wind. Use your free time (such as weekends) to meticulously plan your trades and adopt a trading approach that closely resembles your trading plan.
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Tip 5 – Do Not seek Advice from Friends or Stockbrokers
A friend who trades and a stock broker who trades are one in the same to you as a stock trader. It’s highly unlikely that a friend and/or stockbroker (who have scrutinized their particular stock portfolio to suit their current financial constraints) will advise you favorably on how you can maximize your funds. If anything, listening to them could prove rather detrimental.
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Tip 6 – Do Not Count Your Gains until You Sell your Stock
Performance of your stock is a continuously changing thing. Yesterday you may make a loss whilst today your stock may gain substantially. Regardless of how your stock performs, your monetary gain is not defined until you close your position on that stock.
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Tip 7 – Trade with Excess Money
Given the erratic and speculative nature of the stock market, it’s never a guaranteed surety that you will make money. It would therefore be in your best interest to use excess money for trading purposes. If you lose in your trading endeavor, at least it won’t impact on your personal budget. The worst thing you can do is take out a loan or borrow funds with the intention of repayment at a later stage.
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Tip 8 – Enjoy Your Profits
If you make a profit, do not remain in the trade. If you allow your greed to get the better of you and remain in a trade after experiencing a slight increase in share price, do not be disappointed when the share price drops the very next day. Once again, stick to your trading plan (Tip 1) and allow yourself to occasionally enjoy the fruits of your good trading decisions.
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Remember that learning how to become a better stock trader is an endless and sometimes perilous journey. You need to always keep your wits about you when making financial decisions whilst at the same time having a rational amount of calculated insight to make that buy when the time is right. All financial transactions carry risk and you should speak with a qualified professional if you need assistance.
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Source: Stock Exchange Profile’s Handbook – Sasfin securities – October 2010 to January 2011
Image Credit - www.morguefile.com/cohdra