Finance : How to Trade Stocks

Returns are hundred percent when you use your own money while there will be slight variation with the stocks bought by borrowed money where the returns is usually three times. This though seems good the downside comes when you face loss instead of profits where you lose considerably.

You must also know you risk tolerance in stock trading which is a psychological trait influenced by education, income, wealth, etc and which decreases with age. It also gives you a decent picture of the amount you are willing to risk losing. This is important because a golden rule in stocks is that you must only invest what you are willing to risk losing.

The rules which will help you in trading stocks by decreasing loss

There are certain rules for beginners in particular which if they follow they can save themselves from risking loss. Always it is wise to start trading stocks with small shares as little as hundred and only when you have learnt the skill and gain the experience try the bigger number of 500 to 1000 shares. Make sensible trading during consolidation period which is generally recognized by flat or almost flat periods or 5 to 15 moving period average. Basically a strong trend shows a wide gap between 5 and 15 period moving averages. And the right time for entering a trade breakout is when the price is consolidated into a tight range or when it moves either above or below the highest or lowest value. If you do not wish t enter then you can always wait for the first wave to complete such that the price will pull back close to its initial breakout price.

Stop less helps you in preventing loss it is the margin you set for selling your stocks. When the profits reaches that margin it is better to sell rather than wait for further rise as it might drop down instead. Dividends are yet another factor which signal if you need to sell your stocks or not. Whenever there is a decrease in the amount of dividend received or if the company has stopped issuing dividends then the stock is a very risky one which is going to have a major loss as dividend depends on the company’s earnings and profits. It is a sign indicating that the company will shut down or exit from the market. Learn How To Trade Stocks today!

Timing is everything in stock trading

The popularity of trading stocks is such that everyday new investors venture the stock market hoping to make profits. However stock market and stock trading is s highly unstable venture where patience and strategies are more important than hard work. But of course hard work in the form of studying the market and the chart prices is important but also sticking on to the strategies that are tested over ages. There are varied stages of stocks and thus, it is important to know when to enter and when to exit.

Making the right call of entering and exiting the market or buying and selling the stocks is the crucial aspect of stock trading

Stock trading involves buying and selling of stocks along with making money in the form of dividends that you earn by investing in the stocks.

Every trader should know the four stages of stocks to be successful stock trader. They are stage I, stage II, stage III and stage IV. The first stage or stage 1 is the phase immediately after a very long downtrend which means that the stock which was going down is trading sideways from base. This is the stage when the stock does not give a clear trend making its worth uncertain.

The stage 2 is the beginning of the uptrend after stage 1 and it is that stage where one can make a lot of money. Stage 3 is when the stocks again trade sideways and similar to stage 1 where there is an equilibrium established between the buyers and sellers. Stage 4 is the stage where downtrend starts.

When to enter and when to exit in stock trading?

Stock market is a highly volatile and directionless market where nothing can be predicted for certain without studying the market. Knowing the right time for entry and exit in stocks is never clear with any set indicators but certain factors can be used to determine the right time.

Breakout is one of the right phases for both entry and exit. Breakout is when stock prices rise a little over two or more percent or when demand far exceeds supply. Avoid risking taking decisions of buying and selling stocks in conditions like lower sales, new legal problem faced by the company, bear market, certain situations affecting the earnings of the company which affects its position and pace in the market, etc.

Buying and selling stocks is quite confusing for many where they can never decide the right time of selling or buying stocks. But certain strategies make it easy for taking such decisions. When your stocks are profiting and you are uncertain if the value will rise or drop in the future then you can sell 50% of that stock and retain the remaining 50%.

Selling stocks is as important as buying the right stocks

Analyzing the growth of the stocks is important and when the growth is constant it is better to take a call as once it starts again there might either be decrease or increase in its value. Dividends are a clear indicator for selling stocks especially when the company is either reducing the dividend or stopping it completely because this is a sign indicating towards loss which means selling will save you from incurring a loss.

Whenever the value of stocks drops by 7 or 8% from its original buying price it is an indicator that you will have great loss if you stick on to it. Selling away such stocks is the right move to avoid further loss. When the stocks move up to 20 to 25% their value then sell them to incur profit and reinvest in other stocks before the value drops down. Hoping for an increase above that may prevent you from selling it for which you can retain some of the stock and sell the remaining to have a good gain. Selling stocks is as important as buying stocks because the profit in stocks is always on the papers which if needed to be cashed require you to sell them when the value is high. If you are a novice in stock trading; then it is always a good idea to follow the Trading Tips.