Successful entrepreneurs often have strong business acumen and skills. And while their success may make them an expert in a certain field, this confidence can sometimes lead them to make bad investment decisions.
Because business or industry knowledge doesn’t always translate into investing success, it is important that entrepreneurs and business owners heed these stock trading tips.
A number of these investing hacks are quite simple, proving that if investors just stick to the basics, they can still achieve high returns. The primary stock trading tips that can lead you to investment success include:
1. Don’t fret over a few small losses.
2. Don’t allow yourself to get discouraged – being persistent is crucial when learning to invest, just like anything else of importance.
3. Becoming a successful investor won’t happen overnight, but if you stick with it, you will get better over time.
4. Be sure that you use a cash account – not a margin account – to do your investing. Margin accounts allow you to invest multiples over your cash position. Although your gains may be larger, your losses can wipe away your entire account.
5. There is no need to start out with a great deal of money. Typically, $10,000 to $100,000 is more than sufficient in the beginning. Just be mindful of your personal and business budget.
6. Common stocks are a good place to start. Wait before moving on to more volatile vehicles like options and futures.
7. Keep it simple by purchasing just a few good, quality stocks and watching their movements.
8. Do not allow your emotions to guide your investment decisions. This is a great way to lose a lot of money. Stick with your plan at all times.
10. Always analyze all of your trades – both successful and unsuccessful. That way, you can learn from them.
11. Use a combination of both technical and fundamental investment styles when choosing your stocks.
12. Buy quality. This means doing your research and then buying the right companies at the right time. This will make you more money in the long-run than speculation.
13. Know what to look for when performing an analysis of a company. Here, strong sales and earnings are key qualities for a possible winner.
14. Choose stocks from leading industry groups. Knowing which of the past market leaders did well will help you here, as history typically will repeat itself.
15. There are several sectors that tend to produce profitable stocks. These typically include computers, software, drugs / medical, specialty retail, communications technology, and entertainment.
16. Knowing how to read stock charts is essential. This includes information such as the volume of shares traded each day.
17. When a stock price rises, there is always a reason for it. For example, large investors such as pensions and / or mutual funds may be buying.
18. If a stock starts to show a decline in its earnings per share – especially for two quarters in a row – it is likely time to sell.
19. Often, a stock may pull back to its initial buy point. However, hang on and do not let fear scare you out of the shares.
20. Once you have earned a nice profit, do not end up losing money in a stock.
21. When purchasing shares, it is important to actually only buy half of your desired position initially and then to purchase a small amount more if the price goes up.
22. Average up in a stock, but never average down.
23. In adding a new stock to a portfolio that is “maxed out,” sell the least profitable shares in order to generate the needed cash.
24. If you have less than $5,000 total to invest, then only purchase a maximum of two stocks. Even if you have $100,000 to invest, only own no more than a total of 6 stocks.
25. Diversification is important, but not as crucial as knowing what you own very well and carefully watching it.
26. Only move on to more speculative vehicles such as options or futures when you have several years of investment experience.
27. Just like most other things in life, you often get what you pay for with stocks. With that in mind, don’t buy “cheap” companies’ shares.
28. Keep your initial investing simple. This can actually be implemented by investing in low-cost index funds. In fact, if you need investment advice but still want a “do-it-yourself” approach to investing, brokerage firms like Motif Investing may make sense.
29. Search for stocks that are undervalued.
30. There are really only two main types of investors. These are value investors and growth stock investors.
31. Charts can help you in determining when or if it is the right time to purchase a stock.
32. A good stock to purchase will usually have strong earnings and sales growth.
33. A potential winner will also typically have an increasing profit margin and a higher ROE (return on equity).
34. Technical market indicators can be of little value to investors. Avoid the foolish investing mistakes of everyday investors and don’t think you can beat or time the market.
35. Even if a market is declining, the index will attempt to rally or rebound.
36. Because people are so fearful of bear markets, they tend not to believe the opportunities that exist when the next bull market appears.
37. The most optimal purchase point of any stock is referred to as its pivot point. It is important to not chase a stock more than 5 percent past this point, though.
38. The volume of a stock will oftentimes go up by 50% or more above its average on the day that a stock breaks out.
39. While many people use the term “buy low and sell high” when referring to stock market investing, investors can also make nice returns by purchasing high and selling a lot higher.
40. While not all beginning investors may want to use complicated charts and graphs, chart price and volume action can oftentimes help investors to see when a stock has reached its peak, and therefore should be sold.
41. Do not sell a stock that has gone up by 20% in 8 weeks or less from its pivot point. This is because it could be a true winner.
42. It is a good idea to track the general market such as the Dow Jones, the S&P 500, and the NASDAQ because most stocks follow this trend.
43. Do not worry about other people’s personal opinions about the market. Similarly, take everything you hear in the media with a certain level of skepticism.
44. Negative economic and/or political environments can be a key factor in a declining or bear market.
45. Investors need to know both when to buy and when to sell a stock in order to be a success.
46. No matter how good a stock may be, the majority of stocks will eventually follow the overall market trend.
47. Typically, after several days of distribution over a 2 to 3 week time frame, the general market will usually trend down.
48. Investors should typically cut their losses at no more than 8% below their purchase price.
49. It is never a good idea to purchase a stock that is under $1 per share. This is because good companies are never penny stocks and will usually have their shares priced significantly higher than this.
50. A decrease in the price of a stock on decreased market volume really does not indicate any significant selling.
51. When starting out, using the right brokerage is essential.