Understanding The Stock Market

10 Tips To Understanding The Stock Market

In all types of business’ and different jobs there are things that people refer to as cheat sheets. Well this post is going to be your cheat sheet for understanding the stock market. This list consist of things that are needed to keep in mind when you prepare to trade. Helpful reminders to keep you on track so you don’t get derailed.

DO’s

1. Do your homework on each company that you want to invest in. You need to make sure that you reduce your risk with your investment.

2. Make sure that you leave your emotions at the door. You don’t want to make decisions with your heart. You will be a better trader when you can do this.

3. Have an exit strategy in place before you but into any company. Make sure that you have a limit stop in place to reduce the amount of your loss.

4. Make sure that you try to expand you knowledge in the area of stock trading, as well as learning different aspects of the stock market. There’s a lot more than just stocks involved in Wall street.

5. listen to different shows and news broadcast that involve the markets. I like CNBC, they cover the markets like no one else.

DON’Ts

6. Don’t take tips from people who say that they have some great information on a particular company. Insider trading is illegal and if they had information on a stock they wouldn’t be sharing it with you.

7. When a stock has just jumped up in one day, don’t think that that stock is going to do the same the next. A lot of times it will come back down from other investor who are taking their profits from the day before.

8. Don’t buy your total position at once. Ideally you would buy your stocks in increments so if the stock price drops you can purchase more to help lower your cost basis.

9. Don’t think that a bull and a bear market are the same. A bear market is more volatile and can fool people into thinking that it’s a bull market.

10. Don’t put all your eggs in one basket. What I mean by that is that you need to diversify you portfolio in several sectors. If you put all your money in the energy sector and the price of oil comes down, your portfolio will suffer on every position.

Tags: , , , , , , ,

Related posts

Before Understanding The Stock Market

Before you can understand the stock market, you need to know yourself first. There are many books out there for people to learn how to trade stocks and be involved in the stock market. Of course many of them are trying to sell you something, which is their book. They give you tidbits of information to get your attention and then you run out to get the next book only to find out that that book basically had the same information but just presented differently.  Understanding the stock market takes time, but if you study and stay calm, you just might beat the stock market.

One of the things that are not taught in many of the books that you find is that you need to leave you emotions out of the trades, especially when just learning about the stock market. When people trade with their hearts they don’t make an educated decision, instead what they do is some wishful thinking. They are hoping that the stock that they like (never love a stock, for they will never return the feeling) will be the next Google that will make them rich. To want to be rich is not a bad thing, but when you trade stocks only on the grounds that it will make you rich you will most likely be disappointed and lose your money in the process.

Another one of the things that I really don’t see in books often is explaining to you how important it is to have an exit strategy before even going into the stock and the company. Again people don’t think of going into a stock with the thought of losing money, they always think that it will go up. When you don’t think of the worst case scenario in the venture that you are thinking of, how are you planning to get out of it if it goes wrong. There are different ways to go about it and you must figure it out before you buy into the company.

When you buy into a stock on your emotional decisions you typically will not have an exit strategy in place for when you need to get out.

Tags: , , ,

Related posts