Tip #1: Paper Trading, Your First Step
Paper trading is something I should have done but didn’t. If I had utilised paper trading to learn how to play the stock market before going in live I’m sure I would be thousands of dollars better off. If you’re new to the stock market and plan on trading shares on a regular basis then I strongly urge you to this article on How To Paper Trade!
Tip #2: Investing In Stock Trading Software
My first mistake was paying for a market analysis software called Trade Tech Market Analyser 2000! This software was supposed to provide automatic buy and sell signals that enabled the user to buy shares at the lows so they could sell it at the highs thereby maximising their profits. This piece of software set me back $10,000 because I was stupid enough to fall for the hype at the so called free seminar.
Take my advice, if anyone tries to sell you something that they claim will predict the highs and lows then learn from my mistake and stay away from it. Just so you know the company that sold me that no longer exists making the software useless, but I’ve kept it just to remind me not to be so bloody stupid next time someone promises me something that sounds too good to be true.
Tip #3: Don’t Let Greed Take Control
The stock market today hasn’t changed, people are losing just as much money today as they did in years gone by simply because they led greed cloud their judgement when making a decision to either buy or sell stocks. I’ve lost count of the times I’ve not maximised my profits because I’ve let greed get in the way of what could have been a profitable trade. You’re being greedy when you think you can predict the ultimate high or low of any given stock.
Let me give you an example of how greed can cost you money. Lets say you bought 1000 shares of a particular stock at $10 and you could have sold those shares at $12 realising a $2000 profit. Instead you decide to hang on to it for another day thinking that you could make a little bit extra. Unfortunately for you the share dropped over a dollar when it next opened reducing your profit by over 50%! Had you sold the share you not only would have realised a profit you would have the opportunity to enter the share market again. Heck, I’ve had stock drop so much it’s put me in the red!
Knowing when to get into the share market is something that everyone wants to know. Naturally you want to get in when the stock you’re interested in is at its lowest and sell when it’s at the highest but unfortunately that’s almost impossible to do and trying for it will cause you to miss many trades. This will ultimately result in lost opportunities. In other words don’t be overly upset if the stock goes down after purchasing it or if going up after you’ve sold it. All that counts is that you made a profit and are now ready to enter the market again for your next trade.
Tip #4: Have An Exit Strategy
This is something that I have yet to come to grips with but where its use can not only maximise profits, as in the example above, it can also minimise your losses. Lets go back to those shares that you bought at $10 which now closed at $9.60 The next day it closes at $9.30 and the day after that it was down to $8.90. What you have now is a stock that you can’t afford to sell and so you have to wait until the price goes up enough so you can sell it at a profit. Had you had an exit strategy to sell at say $9.50, you would have been able to buy in again at a much lower price thereby increasing your profits.
Because I hate selling at a loss I’ve been left holding certain shares for months on end tying up money which could have been used to make more trades thereby increasing, hopefully, my earnings.
Your exit strategy can be tied to Stop-Loss Orders, something you should be using, especially if you do not have the time to monitor share prices on a daily basis. This is something that you can discuss with your share broker or if you plan on doing it online then you should make sure they have something in place that will allow you to place stop-loss orders. I actually use two, E*Trade and directshares both of who use something called conditional orders to set their stop loss.
Tip #5: Beware Penny Stocks
Penny stocks are low-priced speculative issues of stock that sell for less than $1.00 a share. I was attracted to penny stocks because of their cheapness but unfortunately for me I didn’t take into consideration their speculative nature. Trading in speculative stock is more akin to gambling than anything else in the stock market. I still have stocks in companies that now no longer exist which makes them totally worthless. They’re still there in my portfolio but only as a reminder so that I don’t get tempted again. Unfortunately for me the temptation was too great but I won’t fall for it a third time.
Having said that there are sites that claim to make a lot of money trading penny stocks, and you may want to include some in your portfolio but I wouldn’t go too heavy on them.
Tip #6: Beware Advice From Business Magazines
OK, so I had no idea about share trading so I go out and buy all these magazines in the hope that it would teach me something about share trading, as well as giving tips on what shares to buy. They’re supposed to be the experts so I figured any advice they give to be good advice, surely better than anything I could come up with. Nope! It took two bad share purchases to learn I should not take anything they say at face value without doing a lot more research.
Tip #7 : Don’t Borrow To Buy Shares
Luckily this is not something I fell into, rather it happend to a friend of mine. He took out a margin loan in order to enter the share market and not being savvy to the pitfalls involved it cost him dearly. Luckily his father was able to bale him out otherwise he would have had to declare himself bankrupt. Here is a great article on margin loans that everyone thinking of taking this route should read.
Tip #8: Diversification
I’ve read that the best way to be successful in share trading is to diversify by spreading your investment capital around in different assets and sectors so as to weather the ups and downs of the market. This is specially true if you haven’t the fortitude of selling shares at a small loss as part of your exit strategy. Unfortunately this requires a fair bit of cash, something that I and I’m sure a lot of you don’t have.
Still I know better than to put all my eggs in one basket and so my diversification consists of dealing with two stocks.
Tip #9: Blue Chip Stocks Are The Go
Blue chip stocks are the complete opposite of penny stocks in that they consist of leading and nationally known companies, ones that have a track record of continuous dividend payments. Because I have great difficulty at setting and sticking to a stop loss exit strategy I now only deal with blue chip companies. That way at least if I’m stuck with them while waiting for the price to rise I’m still making something via the dividends, and some of them pay quite well. So much better than having penny stocks that just sit there giving you nothing in return, which was one of my initial mistakes when entering the stock market for the first time.
Tip #10 Be Aware Of Global Factors
This last point is most important and one that I should have paid more attention to just the other week. One thing you have to remember is that the stock market can be very volatile with dramatic changes happening when you least expect it to. Usually it has nothing at all to do with the company you have invested in which can be as healthy as can be, but as soon as there is some bad news happening somewhere in the world it can cause traders to start selling shares in a wild panic.
This happened just last week because of all the troubles happening over in Greece. The astute trader would have known something was afoot and would have stayed out of the market until the Greek affairs were resolved. Had they done so they would have been able to take advantage of last weeks share crash and picked up some real bargains.
I hope you’ve found this article to be well worth the dollar you spent to reveal it. I truly believe that following these tips will prevent you from making the same mistakes that I did saving you bucket loads of money.
As far as learning how to play the stock market, I’ve put together some resources for you that you may be interested in. Just so you know, if you do decide to buy any of the products below I will receive a small commission.
The Neatest Little Guide To Stock Market Investing seems to be very popular with those who have purchased it.
“Now in its fourth edition, Jason Kelly’s The Neatest Little Guide to Stock Market Investing has established itself as a clear, concise, and highly effective guide for investing in stocks. This comprehensively updated edition contains tried-and-true investment principles to teach investors how to create and refine a profitable investment program. New strategies and content include:
•Basic tips on when to invest and how to reduce the amount of risk in this turbulent market
•A new core portfolio technique that shows readers a way to achieve 3 percent quarterly performance with the IJR exchange-traded fund
•An exclusive interview with legendary Legg Mason investment counselor, Bill Miller, including his thoughts on the financial crash of 2008
Accessible and intelligent, The Neatest Little Guide to Stock Market Investing is what every investor needs to keep pace in the current market.”
How To Find A Big Stocks is written by a bloke who claims to have turned $10,000 into $2,800,000. I’ve included this one because it came with so good reviews and because it’s the Kindle version it sells for under five bucks.
Strategic Stock Trading: Master Personal Finance Using Wallstreetwindow Stock Investing Strategies With Stock Market Technical Analysis is a little more involved but comes highly recommended for the serious stock investor. Here’s a short description of the book.
Many say few know more about stock trading than Michael Swanson, who ran a top ranked hedge fund for four years and has built up a huge audience of readers on his website WallStreetWindow.com thanks to the accuracy of his market calls and investment acumen, including making over 50% in 2008 in one of the worst years for the stock market ever. His book Strategic Stock Trading demystifies the stock market by explaining what truly makes the stock market and individual stocks move the way they do and shows you how you can take advantage of it. The book explains the principles required for you to become an elite trader in the stock market, including what and when to buy and sell using the Two Fold Formula, how to manage risk, and how to be able to foresee real changes in the overall trend of the market before the crowd does. There are many investment books that describe aspects of technical and fundamental analysis. This one puts them together and shows you have to really use them in a strategic way backed by real life experiences and examples. It also discusses the psychology of investors in the market and how hedge funds and institutional investors now influence the stock market more than ever before and what the individual investor must do in this type of market to succeed.”
What you will also need is software to keep track of your investments, even if you’re only paper trading. I personally use the MAUS Stockmarket Plus V11 which will set you back $299. Too bad there is no commission on that link Buyer be warned though that although it does allow you to update the end of day prices that does incur an extra monthly charge.
I realise that may be a bit high for some people and if that is the case they may prefer to grab an old version of Quicken which has the following features;
- Quicken Premier 2011 features investment management tools to help track your portfolio performance and maximize your investments
- Organizes your personal finances and makes portfolio management easier by bringing your accounts together in one place
- Helps you choose the right investments to reach your goals, and identifies ways to minimize taxes on your investments
- Shows where you’re spending and helps you see where to save, with more accurate auto-categorization
- Helps you stay on top of bills and avoid late fees with alerts on upcoming payments
If you found this post to be helpful I would really appreciate a comment telling me exactly what you liked about it.[/ppw]