As a blogger for Fox on Stocks and a passionate day trader, I’ve learned some pretty valuable lessons—sometimes the hard way. Here’s what to do (or NOT to do) to avoid making the same mistakes, and to fly ahead with your trading.
1. Never take a stock tip. This is true whether you are making a quick trade, or a slow, long-term investment. Why? Because your timing may be different than when the “tipper” got into (and out of) the stock. Trust your own research and judgment. The sooner you do, the more you’ll understand how everything works and the better choices you’ll make.
The one time I bought what someone ‘suggested’ I buy, I lost my shirt… we’re talking thousands of dollars. I bought several shares at $2/share. They told me the stock was definitely going to $10/share and today it trades for a quarter of a penny/share. It’s okay to laugh; in trading as in life you shouldn’t take yourself too seriously! But be sure to laugh and learn.
2. Don’t start trading with real money. First, try it out in a virtual (paper) trading account, with fake money. This rule is not hard and fast, but it is a strong recommendation. You will be so much more comfortable when you trade with real money if you trade with fake money first because inevitably questions will come up that you won’t have immediate answers to, and you don’t want to be penalized financially for adjusting to the learning curve! When you hesitate for a second and are trading virtually, it’s no big deal, even if you lose some money. When you hesitate for a second and real money is at stake, then you could lose a lot of money. Check out some of my favorite free trading sites to get started:
3. Don’t get emotionally attached to a company whose stock you trade or invest in. This is especially true if you are making a quick stock trade based on technical indicators (past stock prices used to see probable future price patterns) because you should only be focusing on price or other movements to make a trade. It’s somewhat true for investments as well since you should invest in stocks that you think will appreciate in price for one reason or another, but not simply because you “love” that company.
4. Don’t obsess over your stock’s price after purchase. It will drive you insane. Choose the price at which you will sell or buy to cover (if you sell short) and either set those actions to occur automatically or keep an eye on your stock, occasionally, to implement those prices manually.
5. Don’t put all your money into one stock. Do not even get close. You probably already know how important it is to diversify your portfolio. You may want to diversify by having some stock trades, some stock investments, and maybe putting some money into options, currency, or other assets. You may also choose automatic diversification by purchasing mutual funds or exchange traded funds (ETFs). Whatever you choose, do not put all your money in one investment. If it tanks for whatever reason, you will lose everything.
The most important thing to DO is to get out there and invest and/or trade your money! I encourage everyone to get involved for many happy returns.