The stock market is responsible for making more millionaire’s every year than any other industry. Learning to trade stocks and invest for yourself can set you apart from the average person in a major way.
If you are new to the markets and trying to build your net worth, start with these stock trading tips.
1. Risk Management
Learning to properly manage your risk when trading should be your first priority.
Everyone has heard some horror story about a friend of a friend who took a major hit in the markets. This is because they didn’t learn how to properly manage risk first.
Before you begin to trade stocks you need to put certain safeguards in place. Decide an amount that you are comfortable with losing. You should do this for each day, month, and long term as well.
Then, make sure that you learn how to use “stop losses.” These are tools designed to help you minimize your risk in the stock markets.
The first thing you have to learn when trading stocks, is how to survive and protect yourself.
2. Finding the Right Broker
As stock trading increases in popularity, it also becomes more accessible. Be very careful about which broker you decide to trade with. Many will carry hidden fees that can quickly add up.
Learn about different brokers commission structures. Commissions are the fee that you pay each time you make a trade. Some brokers claim to offer free trades, but in reality, can cost you more money.
Find a broker that fits your style of trading. Also, make sure that any broker you use, is FDIC insured so that your money is protected in case something happens.
3. Control Your Emotions
This will prove to be much harder than you may think. Some traders will start off using a simulated trading platform to get the hang of different trading strategies before using their real money.
This is a great idea. However, one thing that this does not account for, is the emotional aspect of trading real money. It completely changes the game. Time and experience play a huge role in mastering these emotions.
But until then, don’t allow yourself to make any exceptions to your risk management rules. This will protect you while navigating the emotions of trading.
4. Avoid Pump and Dumps
A pump-and-dump is when large groups of traders enter a stock, and then advertise it to be a good buy. Then as the public buys, they exit with profit and leave the majority with a loss. This typically happens with penny stocks that are very volatile and can be easily manipulated.
Be very careful about where certain “stock tips” are coming from, as pump and dump traders are everywhere.
5. A Good Team
There are many groups of traders out there who genuinely want to help you be successful in your trading. However, there are many more who are out to use a tool to manipulate stocks in their favor.
Some individuals claim to be experts who are not. Be very very careful about who you are getting your advice from. Many “chat rooms” just want your subscription money!
6. Learn How to Swing Trade
Swing trading is a unique strategy that helps you from overtrading. A swing trade is when you buy a stock and sell it a few days later. This can be a great strategy if you learn what is working in current market conditions.
Swing trading is also beneficial because if you have under $25,000 in your trading account, you will be under the PDT rule. This is a rule which limits how many day trades you can make in a 5-day period.
7. Avoid Overtrading
Overtrading is often a new traders biggest problem to deal with. The emotions and excitement can cause new traders to jump in and out of many trades.
Overtrading often leads to “FOMO” (fear of missing out) and can lead to making poor decisions on which stocks to buy and sell. If you are overtrading you are not following working strategies.
New traders should limit themselves to how many trades they can make a day and be very stringent in keeping that rule. Another problem of overtrading is that you are making a lot of money for your broker through commissions and fees.
You would be shocked to see how much your commissions and fees add up to at the end of each month if you aren’t careful about overtrading.
8. Learn Penny Stock Strategies
As mentioned before, finding the right mentor and teacher is critical. You can learn more about penny stock trading strategies here. Be aware that strategies and patterns are often changing.
What may be working well right now, may not work well in a few weeks. There is a constant flow of change in the stock trading world. Finding the right team and mentor can help you avoid many pitfalls and mistakes that solo investors face.
Utilize Stock Trading Tips
Above are 8 stock trading tips to get you on your way to building your wealth in the stock markets. Be patient with yourself as you slowly work your way into the markets.
Time and experience with trading stocks go a very long way. Don’t expect to get rich overnight, otherwise, you will likely end up doing the opposite.
As you start to learn the careful ways to manage the stock markets you will be well on your way to building additional wealth!
For more articles on wealth management, learn how celebrities built their wealth here!