Trading Tips
Follow the strategy!
Before engaging in trade decide upon your strategy considering chosen stocks, meaning the plan where and how you want to end up with those stocks. You should be ready for contradictions in the market: even if stock price behavior is bullish, but recent daily changes are negative, don’t panic! If according to your predictions the price will rise to the target price, don’t rush sell the stock immediately! It’s not so easy to work out profitable strategy – the best way to find one is by permanent testing.
Respect strength of the crowd!
As individual investors you are rarely able to influence the market price notably since there are hundreds of investors like you making trades every minute. The crowd may be stupid, but it has more power than you have. Hence, there is not much to think of: either to flow with the crowd or to step aside, but not to try to run against the crowd. For instance, if a trend is upward, you should only buy or not engage in trade at all. To know present dominating behavior on the market – read Market Overviews!
Upcoming splits and new share issues are important!
If you get to know that any company in the nearest future is planning to make a stock split or conduct a new issue of shares in order to increase their equity (in order to grow) – it is almost always could be expected that share price would increase. That happens mainly due to the oversubscription for the new shares – often happens in the Baltics.
Don’t hold stocks for a long time if they are on the downtrend!
It’s seldom the case that the stock price is not moving according to your forecasts, but you are still waiting for a steady return to the target price. However, the possibility of changed trend persists, so, keeping the loosing stock for a long time might bring you unlimited losses. Wait for the local maximum and sell the stock.
Spend more time on stock market research!
Investment decisions are as importing as decisions of mobile phone, car or house purchase – they require time, a lot of time. Even additional 5 min a day of intensive market research would definitely increase your possible portfolio returns. Perhaps try adopting a productive financial morning routine that is frequently used by both newbie and amateur traders.
News matter!
The stock price is considered to depict all the publicly available information on the market, hence, good or bad news will inevitably influence the stock price in corresponding manner. By following the news you are able to forecast short-term price movements as well as general company performance before reports would be published.
Trust One Person, YOU
Do not trust to majority of stock “advisors”, since if their strategies and tricks would really work in the market, they would have made millions of dollars already and would never offer to share their experience with you. Moreover, if everyone follows the same strategy it simply looses its strength.
Diversify your portfolio, but not over diversify!
It’s proven that 70% of total stock risk is diversifiable one, meaning risk that can be minimized simply by including stocks in a portfolio. For better effect of diversification choose stocks that are negatively correlated between each other: those could be from different industries, countries, regions… As you see diversification minimizes negative effects on the stock price, however, it does the same with positive ones limiting your possible profits in such a case. That’s why it’s also important not to over diversify your portfolio!
Don’t forget about commissions!
Those traders that want to gain on short-term movements of the price should bear in mind commissions they have to pay for each transaction. Occasionally a trader sees positive change in the daily price, but overall effect after selling is negative – this is because of transaction costs exceeding the accumulated change in the stock price.
Invest in more liquid stocks!
In real life, if you have bought a stock it’s logical that once you’ll want to sell it, for instance, in case of expecting bad annual report or when price has risen high enough. But there is a possibility that no one will want to buy the stock you’re holding; this can lead to uncontrollable losses till the moment you find the buyer. To avoid such cases buy stocks that have big turnover, large number of deals, low bid-ask spread.
Don’t make decisions during trading hours!
Be patient and don’t be driven by price movements during trading hours – the latter is more volatile during one day than during one week. Plan your steps of investment strategy in advance to maximize profits!
Never Stop Learning!
Majority of traders compare trading with a game, and playing more of it you become more and more experienced. It’s hard to learn investment only from trading tips except for its basics. Therefore, read books on investment, listen to professionals and, of course, try to trade yourself. Don’t stop educating just because you beat the market last year, there is always a higher goal to reach.