Top Tips for Effective and Profitable Stock Trading
With the proliferation of websites, courses, and some outright scams telling you how easy it is to make money trading in stocks, it is important to ensure you develop a profitable stock trading plan. This article gives you some handy tips that you should integrate into your stock trading.
1. Keep an eye out for an “educated buy.”
If there is a particular stock that is at a low price but is being traded in an unusually high volume, there is probably something that those trading this stock know that you don’t. Find out ways to establish what information they have that you don’t.
2. Have protections in place if the value of a stock lowers.
Whilst I applaud you for engaging in profitable stock trading, you must remember that every time you invest in the stock market there is an element of risk. What will you do if the stock you have invested in plummets in price?
To help protect yourself, you must decide how much you are prepared to lose before you invest. This is an essential part of any trading plan.
A commonly used tactic is the stop-loss. This is a floor price that you will sell a particular stock at before you lose any money. A common amount for many investors is a price 5-10% lower than they paid for the stock.
3. For profitable Stock trading, you should look at a combination of growing your capital, and finding the best returns.
The total amount of money you have to trade, your capital, should be spread between low yield and low risk “blue-chip” stocks, and other stocks with the ability to give higher returns but are possibly higher risk.
4. Write down your trading plan.
You may have a detailed trading plan in your head, but you should write it down. This helps you identify the goals of your profitable stock trading plan, and makes you more likely to stick to your plan if things change.
5. Every trader has access to the same information
There are many successful traders out there who have access to exactly the same information as you do. With the proliferation of online information, everyone can have access to charts, up to the minute stock prices, and company announcements. These same traders also have losses, but their effective use of the information available to them gives them the edge in profitable stock trading over those who are not effectively using the same information.
6. Buy on the rumor and sell on the news.
Sometimes you need to buy as soon as you hear that rumor. For example, if you hear about a potential takeover bid of a company, you want to get in whilst the stock price is low because it will rise.
Stock trading is not for the faint-hearted and should be treated as a long-term investment. You should not jump ship at every little jump in the road.
7. Work out your entry price and exit price first before buying your stock.
For profitable stock trading, you should work out what a stock is worth to you and only buy if it is below that price or it gets down to that price.
You should also have sell prices, for both if the stock increases in value, and if it decreases in value.
8. Diversify your portfolio.
As previously mentioned, there is a risk in investing in the stock market. Don’t put all your eggs in the one basket. Spread your capital across a variety of stocks. You may find that as one stock depreciates in value, another is appreciating in value. This minimizes your losses and leads to more profitable stock trading.
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