Whether you’re new to the stock and options trading game and are looking for a road-map to help you navigate these choppy waters, or whether you consider yourself an "old pro" who's looking to brush up on the basics in a market that has rocked the confidence of even the most-savvy players, we have 10 tips to help you to find the road best taken.
Wanderers get lost - Setting out on your first foray into financial planning and investing without a well-planned investment strategy is like going on a cross-country road trip without a map. Taking the time to develop a well-thought-out investment plan (including your financial goals, personal goals, risk tolerance, available investment amount, etc.) will help protect you from trendy, and often risky, speculation.
Passion fizzles - People are fallible and, more often than most like to admit, they make decisions based upon their emotional reactions instead of facts and research. Doing your homework will pay off in the long run.
This little piggy… - Novice investors too often forget to take profits from stocks that continue to rise in value. Remember, what goes up must come down eventually. Do your research (maybe using some stock analysis software or an online trading service), read the professional analysis, and take your profits before you lose them.
Diagnosis: Analysis paralysis - Novices learning how to invest in the stock market tend to “overdose” on information, which results in them becoming easily confused, overwhelmed and indecisive. If you’re on information overload, rely on the advice of your broker (if they offer it) and trusted resources such as Trending123.com.
Few pots of gold - Don’t enter into the trading arena with a “get rich quick” mentality. While you may have success in trading, the most successful traders know that successful portfolio development is a bumpy roller-coaster ride. The market is volatile. If you don’t have the stomach for it, look for the lowest risk possible.
Enter at your own risk - A common misconception is that “low risk” equals no risk. This is simply not true. Risk can be managed, but you must realize that it does exist with every trade. A well-researched trade can minimize the chance of a negative outcome, but you are always taking a risk.
Sleeping on the job - Many novice investors jump out of the gate strong, but their initial interest wanes over time. If you don’t have the time, or conviction, to regularly monitor your investment, rely on financial investment services and advice from professional investment counselors. Or, invest in established, well-performing mutual funds while you’re just getting started and use a paper-trading service to help you explore basic options trading strategies or even more-advanced ones as you start to get the hang of it. (You can create a paper-trading account absolutely FREE by clicking here now.)
Many eggs, one basket - Remember the old adage “Don’t put all your eggs in one basket?” It holds true for investments as well. The truly successful investor has diversified investments to offset the ups and downs of the market. Spread your investments to increase profit potential and decrease loss potential.
Rumor has it - Novice investors are too often looking for an advantage in the wrong place. Don’t make trades based upon a “tip” from your neighbor or brother-in-law. Conduct your own research, consult your investment adviser and be sure the facts support the “tip” before you make your decision. Relying on tips alone can get you into financial trouble quickly!
Surplus Shopper - Never invest money that you can’t spare. Yes, you could make a killing in the market and triple your investment; but you can just as easily lose it all. If you can’t afford to lose it, you can’t afford to invest it.
Good sound advice.
I'll add one part that I like to do.
When taking profits. Sell what you spent and save the rest as Equality for emergencies. So...you spend $1,000 on stock A. Paying $1.00 per share. Stock A rises to $1.10. Your investment worth is $1,100 for your 1,000 shares. Sell 909 shares ($1,000) and keep the 91 shares as emergency equality. Those shares will keep you afloat from margin calls and keep margins strong because your diverse. This method is awesome if your playing with quality stocks. Plus you have free play...if it doubles...sweet. If it tanks...no problem....you didn't lose anything.