Stick to what you know
My number one tip for successful share trading is to stick to what you know as that way you will always come out ahead. Your interests and passions can often lead you to know more about an industry than the average Wall Street trader does. If you stick to the companies you know a lot about, industries that you are interested in, then you’ll be able to foresee changes more quickly.
Never follow tips
When I say never follow tips I don’t mean stop reading this list. I mean you should never, ever, follow a tip to buy a stock from your broker or man in the street. (At least not without doing your due diligence first at least).
There’s several reasons for this. First, your broker has a conflict of interest. She wants you to buy the stock so that she can get a commission so she doesn’t really care if the stock goes up or down. Also, if she was actually a good share trader she’d be doing that instead of stockbroking.
Second, if you get a tip from someone else, you have no idea what their intentions are. borsa italiana That person may have bought the stock at much lower levels, or they may have already hedged it with another short trade. They probably haven’t told you about their exit strategy either.
Volume can indicate direction
It’s not always the case but volume often shows direction and this is particularly true for smaller cap stocks with less liquidity. Basically, when a stock moves up and this is accompanied by an unusual increase in volume it shows that investors know something and they’re bullish.
Use money management
This tip could easily be number one but you should probably know about it by now. In order to profit from stock market moves, it’s important to work out how much money you are going to risk and this is best done in a scientific way. That way, you can develop your own system and never put too much capital in any one trade.
Stocks do not always trend
There’s a couple of interesting points to note about stocks. First is that they don’t always trend. In fact some stocks never trend at all.
You see, every stock has its own personality, some are high risk, some are defensive, some are speculative and some are high growth. Peter Lynch does a great job talking about the different personalities of stocks in One Up On Wall Street. Working out the personality of a stock is great way to set up your money management.
The second point is that stocks often move aggressively, which means you need to be invested at the right time in order to capture the gain. Stocks frequently jump on the open or rally 10-20% in one day and then do nothing for the rest of the month or even year.