A Few Lessons For the New Stock Trader

Stock trading is much more of a business then your casual retirement account investing. Even though we all need to pay more attention to our long term investing to improve our returns if we don't treat our stock trading like any new enterprise we will quickly end up like the majority of new startups - bankrupt.

Every new business requires a business plan. If you don't have a set of rules that you abide for you are simply gambling your trading money away. It is both acceptable and encouraged to change or refine your rules, but at the moment of trade execution is not the time to do it. During trading hours you follow your rules as gospel, and after hours you can reflect and refine.

When you are first starting stock trading you will want to keep the plan simple. If you have to make too many calculations on the fly you'll make mistakes. Use round numbers of shares, one hundred is good, to start. Even if the trades are too small to make a large difference it's more important to see how well you execute, if the emotions of this strategy are too much, and how are you win/loss ratios than trade the perfect.

The next thing to learn is how to cut your losses quickly. Human instinct is to hold on because you were sure you were right. When you do sell you'll remember every stock that takes off every time you bail out, but you won't remember all the money you actually saved. Again, quit caring about emotions and bragging rights and focus on the business. If you hit your stop loss, sell. If you hit a situation that doesn't fit the plan and you don't understand, sell (and refine your plan.) If you have to leave for an emergency and can't manage your active trades, sell. Get the hint?

The last thing you must focus on when you're new is to reduce your choices. You'll be tempted to trade stocks, bonds, futures, FOREX, options, and who knows what else all at the same time. This is not advantageous because you won't be able learn any of them properly. You'll spend 1 minute of planning on each equity. You need time to really understand your plan and what happened in reality. Pick two or three of whatever your preference is to start and stay with them until you're bored and profitable. If you can't make one work now, drop it and choose another, but don't keep following it until you're more experienced.