Stock Trading tips – Every day, more and more people participate in the financial markets as retail investors. Whether it’s with the hopes of becoming the next Warren Buffet or simply keeping their minds busy every trader has had their own ‘starting point’
Becoming successful takes time and despite some recent happenings. Where certain stocks ‘Go to the Moon’ making some very wealthy. It’s quite unlikely that an investor will become rich overnight.
Nevertheless, there are a few stock trading tips that can help you stay on top of the game and if you play your cards right you might be able to find some winners.
1. Trade one or two stocks at a time
When you are a beginner it’ll take some time to get to know the markets and find the right opportunities. There is a lot of information out there telling you to invest in the next Bitcoin, or people claiming they’ve found the next ‘Short Squeeze’.
This type of information is overwhelming for a beginner so…
Focus on 1 or 2 stocks for a start and have a smooth beginning. When you feel you can handle the ones you picked well enough to move to the next one add a couple more to your list.
Be sure to become an ‘expert’ in each industry of the stocks that you want to trade. Staying on top of the news is one thing. Understanding what’s happening and how to interpret it into the markets is another
Related: Best Stocks for Beginners
2. Pick the right company’s shares to trade
Remember that when you are buying stocks from a company you are becoming a partial owner of the business.
If you have a specific company in mind or a list of potential businesses you would like to trade research them. Make sure that the companies you choose have the potential to be around for many years, constantly innovate and avoid scandals.
Once you pick the companies you want to follow make sure to subscribe to a trustworthy stock trading news outlet like MarketWatch or Today’s Waves! by Surf’s Up.
Keeping up with industry news is crucial to stay informed on the local, and global events that may affect companies’ operations thus influencing share prices
3. Use logic not emotion
When you are trading and suddenly feel that the nerves are coming to you and your mind starts going crazy… breathe. Then go back to what you were. This is a great option to pull emotions aside and bring in logic. Remember, most good trades are made with logic, not emotions.
Keeping a cool head is a trait all successful traders have, trust your gut and don’t fear the red days, it’s just part of trading. The last thing you want is to make rash decisions, especially when your money is on the line.
If you feel too nervous investing maybe invest with an amount you feel more comfortable trading stocks. Investing 100 compared to 1,000, and 10,000 dollars feels a whole lot different and will definitely play with your head if you don’t feel sure of what you’re doing.
If you’re just starting out, we recommend trying out a demo account so you can get the feel of what trading the markets is without actually putting your own capital at risk.
4. Don’t overreact (to good and bad news)
There is always risk involved in trading whether you’re trading, some investments are riskier than others, but to a certain degree, there will always be a risk.
As humans, we tend to over-react in the face of risk, it’s part of our fight or flight response. If you make an investment that you are sure is going to be a winner. The bell rings and it starts the day going down, you might start feeling stressed and ready to make a rash decision.
Try to not overreact because of short-term events. Here are some tips:
- Looking at your stock once per quester is enough
- Focus on the share price and not on the company value
- Find out what triggered the price lowering or increasing price and then analyze if its something that would affect your long term stock. If it is then take action.
Likewise, if you make a great trade, you might be tempted to pour more money into that stock in order to squeeze the most profit. Keep calm and stick to your plan. This is especially true in day trading.
5. Be aware of your own Time
There are people out there that claim that by day trading they only work 2 hours a day. That’s quite misleading, to execute successful trades, investors must do research, look at patterns, and analyze the situation before going in and making a trade.
A good metaphor could be played out by Olympic athletes, many of whom spend years training for a 10-second race.
Taking those extra moments to look over charts, company reports and speculative news will save you many headaches down the road.
#FastFact: Treat day trading as a full-time job
6. #TakeYourTime … before making a trade
When you log into your account you will see a lot of trading and stock movement around. Most stock trading tips focus on analysis and opportunity, but #TakeYourTime. Surveys done show that most beginners take between 15 to 20 minutes before making a move.
If you are a beginner, wait some time before making a move. Look at the market and analyze it. Not only does it take time to reassure yourself and wait for the confirmation you need to make the trade, but executing the trade in a calm manner ensures you place your order correctly.
Take a deep breath (without looking at the screen please!) then, go choose the order type you want to place. Take another deep breath (without looking at the screen again) and only then if you are still into that amazing trade make the move!
Far too many times we let our emotions run our trades for us and this includes the execution.
7. Follow the News
As mentioned beforehand developing a habit of checking up on what’s happening around the world, specifically what’s happening around the world that can affect the markets is essential to trading
You’ll want to look precisely for news that affects the industry of the companies whose shares you own.
Like stocks, doing research on trustworthy news outlets is key. Choose a media outlet that not only gives you a great summary of the day’s events but also breaks down what happens and how it could potentially influence the stock markets.
As we mentioned earlier above, we recommend MarketWatch or following Today’s Waves, a Surf’s Up column. But your source may differ according to what you’re trading.
8. Stock trading involves risk, how much can you risk?
Here’s another stock trading tip that is highly important. Risk management and trading go together like peas and carrots. You can’t expect to do well in trading if you can’t assess the risk you are willing to take.
Make sure to know how much you are willing to risk on the market and what amount of capital you prefer to keep safe. While we can’t suggest how much you should risk, data shows that most traders prefer to risk 1% or 2% of their overall invested capital per trade.
One basic rule many people forget to live by is that trading should be boring. If you’re investing enough to feel a rush it’s easy to let your emotions control you.
So do right by future you and learn to assess risk
#FastFact: Now you can trade fractional shares. This means you can trade using small dollar amounts.
9. Stick to the formula, don’t chase profits
Going over these stock trading tips, and once you have taken a look at the stock market and feel more confident about it, develop a strategy. Most importantly, follow it! No matter what, in stock trading, you get your emotions out and Stick to the Plan!
If you can’t repeat the mantra “Plan your trade and trade your plan.” Write it on a post-it and stick it somewhere visible while you trade.
There are many types of strategies to trade, and trying them out on a demo account is always a good idea. These are the most common strategies out there:
| STRATEGY NAME | WHAT’S IT ABOUT? |
Daily Pivots | Buy the stock at the lowest price and sell it on the same day at a higher price. Thanks to this strategy traders get profit from the stock daily volatility. |
Dollar-Cost Average | Invest a set amount of money in regular time intervals. In more regular English: Find an amount that works for you to try trade with it every week or every month. No more, no less money. The amount you pick from the beginning. |
| Scalping | Sell as soon as you see there is a profitable deal or trade. If you are taking the profit out of the trade then just do it. |
| Buy in Thirds | Once you have the amount of money you want to invest divide it into 3 (as a minimum) and then pick 3 different companies you want to buy from. |
Momentum | Find a good trend on the latest news and perform your trades according to it. Find moves with a high volume and trade when it begins to decrease. |
Buy the Basket | If you cannot decide from which company of the industry to buy from, buy them all! This particular strategy prevents you from spending time choosing which one is better and also may help you identify which is the best company and to double your investment later on. |
| Fading | It’s a high-risk strategy and consists of trading against main market trends. It is usually made with short stocks. Your signal for trading: when buyers start stepping in again. |
This table was constructed thanks to the information available in Investopedia and Nerdwallet
10. Be careful with Penny Stocks
We’re almost certain that you’ve heard about OTC penny stocks. If you have, you are more than likely to have heard about some lucky investor that made a 1,000% return overnight. But penny stocks seldom make people rich, except for those who deceive others that it’s a good investment (as seen on Wolf of Wallstreet)
Penny stocks are mostly illiquid. This means it cannot easily be exchanged for real money or cash without losing value. So please stay away from them unless you’re certain you want to take on the risk.
There’s nothing wrong with deciding to take on risk, as long as you do it responsibly and are aware of how risky a trade is.
11. Not every stock will give you a winning trade
Despite the best stock trading tips, stock Trading is a numbers game, the more you do it (correctly) the more likely you are to make profits. Nevertheless, the markets are unpredictable. Even the most veteran traders have red days.
Research shows that most successful traders only profit on 50% to 60% of their trades. However, they make sure that those winning trades surpass the losses on the bad days. A good rule of thumb is to establish a win/loss ratio in your trading strategy.
A win/loss ratio is simply a goal you set to make as a minimum on every trade and a maximum you are willing to lose, a point where cut your losses if you will. So, say you have a win/loss ratio of 3:1 it means that on every trade you want to at least make 3 times more than what you are willing to lose.
#FastFact: Studies show that day trading is most profitable in the long term
12. Your biggest profit may take some time
By this, we don’t mean you’ll be chasing a decent profit for the rest of your life. We mean that some of the best trades made are the ones where investors buy and hold for years.
Take a look at Apple, for instance, their company built an entire ecosystem for innovation which eventually gave them the title as the most valuable company in the world. How does this make apple a good stock? You might ask.
Apple stock has compounded at 18% per year since its IPO price. That means that if you had invested $10,000 in Apple in 1980, you would have about $6.7 million.
Long-term investing is a different approach to stock trading, yet it’s a valid one. If you decide to invest in a company long-term your approach would definitely be different in how you evaluate a company.
13. Learn your order types!
After 12 stock trading tips, you already know stock trading is the buying and selling of stocks, but it’s actually a bit more complex than that. There are many ways you can buy and sell using different types of orders. Each order type is used according to your strategy, so we will show you some of the most used order types.
Market Order “The simple order type” – A market order gives you whatever price is available in the marketplace. Market orders are advantageous when you need to get into or out of a trade quickly.
Buy Limit Order – An order to buy that is placed at or below the current price. Buy limits are also used as targets, to get you out of a profitable short trade.
Sell Limit Order – An order to sell that is placed at or above the current price. Sell limits are also often used as targets, to get you out of a profitable long trade.
Buy Stop Order – An order to buy that is placed above the current price. This order can be used to get out of a short trade. Buy Stop Orders are useful for using as a stop-loss on short positions and for buying breakouts above resistance.
Sell Stop Order – An order to sell that is placed below the current price. This order can be used to get out of a long trade and as a stop-loss on long positions when the price is moving against you. They are also useful for selling/shorting on breakouts below support.
Learning about order types can be confusing at first. And there are more than the ones listed above. That is why we decided to keep the list short. If you want to learn more about order types, we recommend reading this article.
14. My Stock Trading Diary
This may sound tedious and maybe even dorky at first, but trust us. It helps! Go to the store and find your new favorite trading partner: Your trading notebook. Keep a diary and do the following:
- Write down every main stock in your portfolio
- Why are you buying it or why did you buy it?
- Why do you prefer that specific company
- Opportunities you see in the future
- Have some good metrics?
- Why would you sell it?
- Issues that may affect the company stability in the long term
- Business changes
- Temporary setback signs you may find
- Write down every secondary stock in your portfolio and do the same.
15. Select an Online Stockbroker
When opening an account make sure you do it with a trusted broker that offers you personalized assistance and that truly helps and supports you to be a better trader.
Opening an account with an online stock broker will make your life easier and could bring you many benefits. You can trade from the broker’s app or website just make sure the broker you choose has a user-friendly website and platform as well as good reviews before choosing to do business with them.
Do some research, and make a list of qualities that You value in a broker. Compare them up against each other and maybe open a demo account with a few of them. This takes us to the next point.
16. Demo Accounts
One of the best stock trading tips is trying demo accounts at the beginning is a great idea to get used to the dynamics of trading and the stock market. It helps you get some practice and experience before getting into the real deal.
It also serves as a ‘window shopping’ experience for what trading with the broker would be like. From everything like their platform to the assets they use, using a brokers demo account is a great way to do business with them without making a huge commitment
If you enjoyed this article you might also enjoy this one. Surf’s Up! Gives us 4 steps to take before doing online trading:
Remember you can also take a look at our Best Stocks for Beginners for more stock trading tips where we introduce you to the main facts to bear in mind when starting to trade. Also, check our guide on How to Buy Stocks Online and find even more benefits of Online Trading.
