Numerous strategies, styles and techniques can be applied for trading stocks. Generally speaking, stock trading involves sort-term buying and selling of shares and long-term appreciation and holding for a year or longer. Some traders only own shares for a few minutes while some others own for several months, all depending on individual trader’s strategy and style.
1. Have a plan.
A successful investor should employ a strategy that works well his temperament and account size. Prior to invest with real money, a novice trader should pick up a trading strategy and practice trading with that strategy to verify that it can generate desired level of profits. The strategy implemented should include the selection criteria for stocks, setting entry and exit points as well as the size of each trade.
2. Keep a journal.
A trader need to write and keep a journal of all the owning stocks. The journal should contain the entry and exit prices, whether a stock is profitable and why a trade was entered or exited. The journal is also useful to record your thoughts and feelings about each of your trade every day. Stock market trading is a mental game and the journal is a helpful tool to monitor your mental state.
3. Cut the loser short.
Day traders can’t take big losses. Based on the SEC’s report, most day traders suffer from significant losses when they begin trading and could lose all their capital. A successful trader will not allow a losing trade to run. To prevent big losses, a trader need to set a tight stop-loss point and close the trade once the stock falls to the set point. If you can control the losses, you will be able to profit at trading with a 50/50 split between losing and winning trades by keeping the losing amount to the minimum.
4. Know yourself.
Again, stock trading is a mental game and it calls for mental toughness. You can’t be emotional on your trades or the market. Since stock trading is a high pressure activity, a trader needs to know how he will react under high pressure. The plan and activities must conform to a trader’s psychological makeup. Different individual traders have various styles: some of them are better at aggressive trades that lead to larger gains or losses, while others would like to make a few dollars each on a few trades and limit the odds of a loss. A good exercise before developing your trading plan is to a personality test so that you can determine your trading strengths and weaknesses.
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