Great stock trading is not about how hard you work or how frequent you trade. It's about being disciplined and knowing what metric to use at the right time, and then putting that knowledge to work. Here are 5 stock trading tips that are going to help improve your trading.
Total cash and total debt: Look up the total cash that a company has. The balance sheet will usually have this metric. Now see how much debt the business has. This is also found on the balance sheet. You want a company that has a lot of cash and little or no debt. A company that has a large amount of cash and little debt is a company that is good at whatever it is they do. It means that you are less likely to be caught off guard by a sudden stock offering to raise cash. A company that has a lot of cash is less likely to go bankrupt. It is also an attractive buyout target by a larger company.
Know yourself: How long you hold a stock and what time frame you use on your chart settings should depend on what type of person you are. Some people have little patience and want to actively trade in and out of stocks. For someone like this, trying to execute a long term buy and hold strategy is nearly impossible. This type of person will sell for a loss because he grew impatient waiting for a stock that seemingly was going no where. Other people can not sit in front of a computer and watch their investments all day. He or she could have children to care for, house-hold chores to do, or a full-time day job. Having a long term buy and hold investing strategy where a stock is looked at every few weeks is better for someone like this. Know yourself. Discover what is best for your lifestyle and then seek to master that trading style.
Stops and profit goals should be the same: The wonderful world of statistics and probability, most new traders do not understand. They will often go for a 5% profit target while setting their stop loss at 10% or greater. If you are risking 10% of your money to make just 5% profit, one losing trade will wipe out every two winning trades. You will have to nail twice the number of winning trades than you do losing trades just to break even! You will lose money because the math is not with you. Always set your stop loss and profit target the same. If you are going for a 5% profit, your stop loss should be no greater than 5%. Your stop loss should not be more than 10% if you are trying to nail a 10% gain.
Find successful traders to talk with: It's not just what you know, it's who you know. While stock trading may seem like an individual pursuit, you need to talk with other traders to discuss strategies and their opinions on a stock you are thinking about buying. Join a stock trading YouTube channel, message forum, or blog. This will help you find out what strategies are working in a given market and will help you keep up-to-date on the latest news and trends. Be careful! Anyone can claim to be a super-star stock trader. If you are thinking about subscribing to a stock picking newsletter, ask to see the investor's actual trade history of winning and losing trades before joining. If the newsletter refuses to give you an actual trading history showing all losing and winning trades, that is a huge red flag. Move on to a better stock picking newsletter that will give you a history of both winning and losing trades.
Market capitalization: Market capitalization or market cap is calculated by taking the amount of outstanding shares and multiplying it by the price of the stock. Smaller companies with a market cap between $250 million and $2 billion having a high probability of rapid earnings growth than larger companies with a market cap between $500 billion to $150 billion. Think sales growth. It's easier for a small cap company to double their earnings year over year than it is for a larger company like Coca Cola to double their earnings or sales. Even Walmart started out as a small cap company. Smaller companies are often in the growth phase of the business and product life cycle. If you are trying to grow a small amount of money as quickly as possible, trading in and out of risky small cap stocks is the way to go. Large cap dividend paying stocks are better for a defensive, buy and hold style of investing.
Total cash and total debt: Look up the total cash that a company has. The balance sheet will usually have this metric. Now see how much debt the business has. This is also found on the balance sheet. You want a company that has a lot of cash and little or no debt. A company that has a large amount of cash and little debt is a company that is good at whatever it is they do. It means that you are less likely to be caught off guard by a sudden stock offering to raise cash. A company that has a lot of cash is less likely to go bankrupt. It is also an attractive buyout target by a larger company.
Know yourself: How long you hold a stock and what time frame you use on your chart settings should depend on what type of person you are. Some people have little patience and want to actively trade in and out of stocks. For someone like this, trying to execute a long term buy and hold strategy is nearly impossible. This type of person will sell for a loss because he grew impatient waiting for a stock that seemingly was going no where. Other people can not sit in front of a computer and watch their investments all day. He or she could have children to care for, house-hold chores to do, or a full-time day job. Having a long term buy and hold investing strategy where a stock is looked at every few weeks is better for someone like this. Know yourself. Discover what is best for your lifestyle and then seek to master that trading style.
Stops and profit goals should be the same: The wonderful world of statistics and probability, most new traders do not understand. They will often go for a 5% profit target while setting their stop loss at 10% or greater. If you are risking 10% of your money to make just 5% profit, one losing trade will wipe out every two winning trades. You will have to nail twice the number of winning trades than you do losing trades just to break even! You will lose money because the math is not with you. Always set your stop loss and profit target the same. If you are going for a 5% profit, your stop loss should be no greater than 5%. Your stop loss should not be more than 10% if you are trying to nail a 10% gain.
Find successful traders to talk with: It's not just what you know, it's who you know. While stock trading may seem like an individual pursuit, you need to talk with other traders to discuss strategies and their opinions on a stock you are thinking about buying. Join a stock trading YouTube channel, message forum, or blog. This will help you find out what strategies are working in a given market and will help you keep up-to-date on the latest news and trends. Be careful! Anyone can claim to be a super-star stock trader. If you are thinking about subscribing to a stock picking newsletter, ask to see the investor's actual trade history of winning and losing trades before joining. If the newsletter refuses to give you an actual trading history showing all losing and winning trades, that is a huge red flag. Move on to a better stock picking newsletter that will give you a history of both winning and losing trades.
Market capitalization: Market capitalization or market cap is calculated by taking the amount of outstanding shares and multiplying it by the price of the stock. Smaller companies with a market cap between $250 million and $2 billion having a high probability of rapid earnings growth than larger companies with a market cap between $500 billion to $150 billion. Think sales growth. It's easier for a small cap company to double their earnings year over year than it is for a larger company like Coca Cola to double their earnings or sales. Even Walmart started out as a small cap company. Smaller companies are often in the growth phase of the business and product life cycle. If you are trying to grow a small amount of money as quickly as possible, trading in and out of risky small cap stocks is the way to go. Large cap dividend paying stocks are better for a defensive, buy and hold style of investing.
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