People love to bend or break the rules when it comes to stock trading. Stock traders will do anything and resort to any means to maximize their profits. However, there are certain rules that are key to prosperity and survival in stock trading. Breaking them can jeopardize a stock trader’s career. Here are the 8 must follow rules of commodity stock trading application.
1) Stay updated
The importance of staying in touch with the trends in the stock market cannot be stressed enough. The whole point of being a good stock trader is being responsive to even the smallest changes in the nature of the stocks. Do not identify the bottom in the stock. This will cause you to be run over when the stock plummets. A stock has great momentum when its trending both ways, especially when it’s falling. In such a case, don’t buy the stock with the hope of a dramatic turn of events.
2) Liquefy your stocks
In stock trading, liquidity enables you to trade in security without negatively affecting its market price. Hence, it’s preferable that you trade in liquid stocks. You don’t want to be stuck with a stock that doesn’t have enough interested buyers.
3) Don’t be stingy
The common excuse for stingy people who end up buying cheap stocks is, “I just bought a diamond in the rough”. Well that’s not really true. If a stock is cheap, then it probably has a good reason for the sky low price tag. Don’t be fooled into thinking that the price of cheap stocks are bound to go up. In fact, they may further decrease and put you in a world of trouble.
4) Avoid losses
In an attempt to hoard the profits, people often lose sight of the fact that incurring losses repeatedly can be very harmful. It’s more important to curb down the losses than maximize the profits. Losses hurt you in the pockets, as well as in the heart. With recurring losses, your trading capital will dwindle, and you’ll soon run out of money to invest.
5) Capitalize on your profits
Letting your profits run is a standard rule of stock trading. Whenever you make a profit, use it to get the most out of the move in the stock. Patiently wait for the value of the stock to reach a maximum, and then reverse in direction. Do not close the position prematurely. The idea is to make your profits outweigh your losses.
6) Avoid excessive trading
Do not mislead yourself into thinking that the more you trade, the more you gain. That is a faulty assumption. If you are uncomfortable with any of your potential trades, then it’s better if you do not open the position. Trade only when the conditions are suitable and conducive for trading.
7) Manage your risk
Stock trading is undoubtedly a very risky business. Avoiding major risks is one of the primary goals of stock traders. You can do this by not committing any money to any financial market. However, if you are up for a challenge and aren’t afraid to manage some risk, then you should have and use a good position sizing model. This prevents you from putting all your eggs in one basket.
8) Don’t rely on tips
Acting on a trip isn’t a very smart thing to do. As a matter of fact, tips may force you to stick with the trade even when the security isn’t in your favour. This will lead you to break the commodity stock trading application rules. If you want to cut your losses, then don’t blindly believe in rumors about the stock’s future.
If you bear in mind these aforementioned rules, then you are sure to avoid disaster in stock trading. Manage your money well and you’ll be soon on your way to becoming a successful stock trader. Happy trading.