Best Stock Trading Rules for Beginners

Submitted by Sharemarket News on 5 May, 2011 - 12:51

Learn about beginner rules when trading stocks.

Some say share trading is an art rather than a science, and the only absolute is market unpredictability (and that rule about using stop losses). The 'rules' below are guidelines that can help the beginner share trader in the game longer.

Get used to losing money.

Prepare your mind and pockets for losing capital when share trading. Loss is normal and necessary if you want to progress from newbie to shark.

Create a trading plan.

Why are you trading? You don't actually have to be in the market. If you don't know where you're going, it's better to stay out and keep your money in the bank. Set goals and stick to them, and modify as you go. Be thorough and plan your entire trading life. Do not simply waste ink, make sure your trading plan is profitable.

Cut your losses.

Figures are not set in stone. Tweak your targets in response to market trends. In a real world example, a trader changed exit timing from 5 days to 20 days, which resulted in a 39% profit to 11% loss (about 50% difference in outcome from a previous) over the past 10 years with stocks from the ASX50.

Use a stop loss.

You obviously don't want to stick around in the market until you have zero capital. Use a stop loss so that when the trade is no longer going in your favor, you can exit or trade in the more promising direction. It's important to have your exit strategy in place and ready to be executed before you even hit the 'buy' button. Often, it is better to close out and improve your strategy to be in a better condition for the next trade. Stops can be the only thing you can control when share trading, so always use it.

Timing your entry.

To determine the structure of the proposed trade, using multi-time frame analysis is helpful. Make sure the time frames are in alignment before using it, though.

Do not get emotionally attached to a stock.

Even blue chips have their bad days. Some traders period sell stocks which gives a 50/50 chance of buying them back at a lower price. If you don't profit, there are always other stocks to buy.

Financial management.

Treat trading like a business. If you have no experience in managing a small business, take advantage of the free information on the web and educate yourself.

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