Five Rules for Profitable Stock Trading

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Getting an education is Priority No. 1.

First, and perhaps most importantly, if you want to make money trading stocks, you need to put money into learning the market. I’m not suggesting you go back to school or acquire any special training, but if you want to trade equities successfully in the long term, you need to have at least a basic understanding of how the market operates.

The stock market is more dynamic than static, so it’s important to invest in yourself by learning about the primary forces that drive the markets. It’s important to learn about the various trading techniques available and to choose one that is suitable for your level of expertise and comfort with risk.

Make a plan for getting in, getting out, and getting away.

Trading stocks successfully requires you to be a cold, calculated customer. Decide how much stock you’re willing to buy at a given price and how often you’ll buy it (entry). If all goes well, you’ll also choose the selling price and your desired profit margin (Exit). Also, before making the trade, determine how big of a loss you can afford to make if things don’t go as planned (Escape).

You should have a trading plan prepared, and you should have the self-control to stick to it. It’s also important to not become an accidental investor. These investors purchase stocks with the intention of trading them, but they end up holding on to them for longer than they should because they either fall in love with the stock during a winning streak or feel sorry for the firm during a losing streak.

Third, learn to see both sides of the coin.

About 90% of new investors enter the market with the expectation of making a profit by selling their shares at a higher price. Therefore, you’ll likely be buying stocks with the expectation that their prices will rise in the future.

Even the most bullish stock in the market is bound to experience setbacks every once in a while, and perhaps even a full-fledged correction. In fact, rising stocks could lose as much as 60% of their recent gains before they begin to rise again. Therefore, when equities are plainly heading for a losing streak, you shouldn’t be scared to short them.

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Step four: Only make cleared trades.

All stocks’ technical indicators, which include buy and sell indications, are therefore useful. The primary resistance/support level is the simplest and maybe most essential buy/sell signal. If you want to make money trading stocks, whether they are going up, down, or sideways, you need to know how to identify the critical support and resistive levels.

Successful traders buy stocks when they break out above a significant resistance level, sell stocks when they break down below a significant support level, and trade stock options when prices are moving sideways. There is no harm in waiting a day or two for the stock’s volatility to subside if you are unsure of the buy or sell signal.

Fifth, never make a financial decision based on hype.

I hate to be the proverbial wet blanket, but I have to inform you that most of the stock market advice you’ll get online or on TV is all hype.

In order to maximise your chances of success, you should always follow Rule 1 and enter a trade only when Rule 2 has been thoroughly considered.

Learn more about how you may improve your stock trading methods by using our virtual stock exchange.

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