Top 10 Trading Tips
With years and years of experience at his fingertips, we have found several trends to making successful trading decisions. For the first time, we present the top trading tips in an easy to read format, just for you.
- Invest no more than 5-10% of your capital in any one stock
In business today nobody can afford to have their success riding on any one company or industry. Don’t put all of your eggs in one basket is a good way to remember not to invest more than 10% in one stock. Remembering this rule is a key to diversifying your portfolio, and diversifying your portfolio is a key to financial success.
- Allow 3 to 4 months to build a portfolio of about 20-30 strong stocks
Investing in the stock market is quick and easy, once you get into the swing of things. Building a portfolio of strong stocks takes a little time and effort to really be effective. Take the time to find those stocks and to make the portfolio a good one. Even though three or four months sounds like a long time, this initial start up time will pass quickly and you will be on your way to successful trading in no time.
- Always carry an exit strategy with each trade
The market is a fickle thing. A great looking stock can nosedive on a whim, and you need to be prepared for it. Having an exit strategy ready for each trade is just like carrying an umbrella or a first aid kit in your car. Being prepared ensures that you don’t get hit hard by the unexpected.
- Diversify your capital by selling a portion of your position at a “first” target.
Setting tiered goals allows for a greater chance of success. When you reach your first target, sell some of the stock and pocket the profit. Using this technique allows you to reap the rewards for reaching a target, and that way if things downturn, you don’t lose everything.
- Each trade entry is designed to have a two to three time greater potential gain (12-24%) than potential loss (6-8%)
If all of your trade entries are designed to have more potential gain than potential loss, odds are it will deliver.
- Waiting for a stock to “confirm” (by trading significantly higher on heavy volume) will drastically reduce trade risk and preserve capital
Waiting for the stock to “confirm” is essential to gaining a stock’s full potential earnings. Why lose 10-15% of your overall return to impatience? Be patient and get your full due.
- Pursuing second targets will create a strong portfolio of winning stocks, with only a percentage of your original capital
Second targets are worth pursuing – there’s usually a substantial amount of potential earnings to be gained by reaching those targets. Fortunately, by selling the substantial amount of the stock at the first target you can take a chance and see if you can score the second target with the small portion of your original investment capital that is left. It’s a worry-free scenario that maximizes your potential success.
- Never chase a stock that “gaps up” more than 5% at the open
If a stock’s price rises over 5% of the previous day’s closing price, then it is said to “gap up”. When this happens, the rise in stock price is usually due to sound bites and rumors that hold no real credibility. If you’re going to chase a stock, do so when you have real, quality information.
- Stocks do not go up forever; pay the price that coincides with your exit strategy
Greed does not befit the investor. Smart investors know that there can be too much of a good thing – stocks that seem to be rising forever will come to a halt or even plummet. So be sure to stick to your initial goals and you will get what you had planned for in the beginning, which should make any investor happy.
- Do not over-commit capital too soon; dollar cost averaging “up,” creates the most stable cost basis
How much you choose to invest has a huge impact on the type of return you’ll be looking at. Create your cost basis by averaging the dollar cost up, and do not commit too much capital to a trade until you have the data to back up that decision.