4 Important Guidelines in Stock Trading and Investing

With all of the shifts and changes in the stock market, stock trading investing has become a popular method for individuals who are able and willing to take the risks and enjoy the excitement of day trading. Before delving into this volatile and exciting way of earning money and increasing wealth, it is important to understand some basic important guidelines.

Guideline #1 – Understand the Risks
The simple fact is, if you cannot afford the risk, then you probably cannot afford to play the game. Day trading in the stock market is not for the faint of heart or the risk-adverse. While it is not recommended that day trading be launched as a casual game, those who are not willing to invest the time and effort into researching potential stocks to trade are more likely to also be the biggest losers in the stock trading game.

Guideline #2 – Know the Difference Between Investing and Trading
Investors buy stocks for the long term. They usually intend to hold on to stocks for several years and maybe even decades before they sell them or pass them on to the next generation. As a result, investors do not usually worry about minor shifts in the price of a stock over the short term.

Traders are just the opposite. They take advantage of those short term shifts to make a profit. If a stock shifts within a matter of a day or even a few hours, the trader will spot that shift beginning to happen and buy and sell based on that shift and take their profits on the fly. By watching specific stocks, they can begin to sight small shifts just as they begin and place themselves in a position to take advantage of the shift.

Guideline #3 – Understand That Everything Has a Cycle
The natural way of financial markets is that everything has a cycle and there are ups and downs along the way. Everything has a high and everything has a low and none of those highs or lows lasts forever.

As a trader, you must be willing and able to set limits on the high points you are looking for when taking profits and the low points when you are taking losses. Everyone has both profits and losses. They key is being able to recognize your own limits when it comes to financial risk taking.

Guideline #4 – Buy and Sell Based on Knowledge, Not Emotion
For most of the public, the whims of the stock market are baffling and as a result, they buy and sell based on emotion. If the news is bad on the television, the next day the public are rushing to sell. If the news is good, they are rushing to buy. A smart trader knows how to not let their emotions determine their buys and sells and instead they methodically research the stocks they trade before making a move. This does not mean that they do not, of course, take advantage of the rallies that result from the emotional buying and selling of the public.

Smart stock traders are able to tolerate risks and know their own personal financial limits. They carefully research stocks they are considering trading, looking for shifts and changes in the trading price and understand that there are cycles to any financial investment.

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