Trading in the stock market is filled with all sorts of risks and pitfalls. Unfortunately, this is often overlooked by most traders. Here are five basics of trading that you can take that will put you on your way to consistently profiting from the stock market.
1. Determine a dollar amount to trade with that creates the least amount of emotion
Let’s face it: Money can create a lot of emotions and with trading, the more capital that you trade with the more emotion that you will feel when it comes to losing money or making it. Fear and greed are two powerful attributes and what you will want to decide as a trader is what specific dollar amount can you trade with that will stir up the least amount of emotion. If you trade with every dollar you have, you will be an emotional basket case. So find the dollar amount that lets you weed out the emotions and think clearly about your trading decisions.
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2. Find a Reputable Brokerage
The ease of trading is important and conducive to your trading success. At a minimum you will want to make sure that the brokerage you use has real-time streaming quotes provides for you, a solid charting service that allows you to interact with it via technical analysis, and a commission rate that is under $7 per trade. Also watch out for hidden fees and stay away from those brokerages that want to charge you a monthly fee for using their platform. It should all come free.
3. A Distraction Free Environment
When it involves your hard earned money, you need to be free of distractions. Your focus on everything from studying the charts to inputting your orders must be done with precision and accuracy. Typing in the wrong order can be costly and easy to do if you are constantly being interrupted. Remember, in the stock market, there is no forgiveness and no second chances and is it hard enough to succeed at without having to shoot yourself in the foot.
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4. Respect The Risk!
Trading has risks and if you go into it thinking that it is all about making money, you will be greatly disappointed. For every trade that you make you must always use a “stop-loss”. This is a clever little order that says, “If the trade goes against me, this is where I will sell my shares at”. Here you are managing the most important aspect of the trade: The Risk. Waiting until you are in the trade or losing money in the trade is not the time to decide where the stop-loss should go. It must be done before you ever buy the stock.
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5. Protect the Profits
When you have a trade that is going in your favor, avoid dreaming or fantasizing about how rich you might get from the trade. Instead, increase your stop-loss, and protect those profits. You should never let a winning trade turn into a losing trade and once the trade itself no longer appears valid, that is when you must get out and move on to the next opportunity.
Ryan Mallory is cofounder of SharePlanner.com, a financial website with the goal of providing a real-time trade environment that allows readers to benefit from his trading setups, risk mitigation strategies, transparency, watch-lists, investor education and trading ideas for all types of traders. He is also the author of the book, The Part-Time Trader.
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