Trading the stock market is a great way to create income. But, before you start trading, there are a few tips I want to give to help you along the way.
5 Tips to Being a Awesome Trader
1. Control your emotions
When you're trading, it's important to keep your emotions out of the picture. We get scared, greedy and we tend to make some bad decisions when we’re dealing with money. We will get scared when a stock goes down and end up selling it sooner than we should. When we’ve made some money, we'll get greedy and, like at a casino, double down and lose everything.
Don't make trading decisions when you’re feeling greedy or scared about losing money. I’ve traded when I was feeling greedy and scared and lost a lot of money as a result of it. There were times when I made $1500 in a trade and I felt like...
“Hell, yeah! I’m so good at this. You better ask about me!"
Only for Mr. Stock Market to smack me down and take my money.
Now, instead of trading on those emotions, I step away from the computer for the day and do something to celebrate my win. If I’m feeling scared, I will do some more homework on that particular stock so that you feel more confident about buying or selling it.
The goal is to make confident, educated decisions based on what you know about that company, its stock and your stock charts.
2. Don’t try to pick the top or the bottom
When a stock is going up people get so excited and want to buy… RIGHT NOW! They want to make every dollar possible. They don't want to miss a penny!
The problem with this is we don't know with 100% certainty when a stock is going to stop going down and we don't know when a stock is going to stop going up. Buying just because a stock is low, you could end up buying while it's still headed down. This is called "a falling knife". Just like with a knife, you don't want to try catching a stock while it's falling. We're all speculating out here, and going off of what we know about the company, its history and what the stock charts tell us price-wise.
When you stop trying to buy at the lowest possible price (pick the bottom) and sell at the highest possible price (pick the top), you’ll see better results. Instead, buy when the stock price is going up and sell while the stock price is still going up. Determine how much you can make in that particular stock and stick to it. If it's $100, sell once you've made $100 and move on to another stock. I call this going for “the chunk in the middle”. This minimizes your chances of losing money since we can’t predict when a stock will stop going up or down.
This is the stock chart for a trade I did in UPS. By just going for the “chunk in the middle,” I was able to make $1k and avoid the down turn the stock eventually made.
3. Have a trading plan
There are a few things you need to ask yourself before you buy a stock or option:
- Are you trading or investing?
- Why do you want to buy this stock?
- At what price you will buy?
- A what price you will sell?
- Are you going to sell it when you've made one dollar per share, two dollars per share, ten dollars per share?
- Is there a trend or event that will make the stock price move?
- Is the company coming out with a new product or service?
You want to be able to answer these questions before you buy a stock or option because a trading plan helps you determine when you're going to buy, sell and why! If you're in a trade and you don't know when you're going to sell it, that means you're probably trying to guess the top or bottom.
In which case, you need to revisit #2 above because you're just buying the stock for no reason and there's no game plan.
4. Trust your charts
Stock charts can seem intimidating to learn but it's so important to learn how to read stock charts. They will show you if a stock is starting to go up or if a stock is starting to go down.
They will also allow you to determine if a stock has a trend of going up or down during a certain time of year.
Simply put, stock charts give you necessary information you need to make money.
5. Don’t take trading tips
Do not rely on a "guru" to give you trading tips! They are just speculating like the rest of us. If your chart is telling you one thing and some guru or expert is telling you something else, GO WITH WHAT YOUR CHARTS ARE TELLING YOU.
You don't know why they're giving you that tip or why they believe the stock will go up or down. And in most cases, by the time they give you a tip, the move is over with and it's probably too late to buy the stock to make money. Then, you're left feeling like you shouldn't have listened to that "guru" in the first place!
This is why I don't give out stock tips, I don't take stock tips and I don't recommend taking stock tips.
Learn how to trade and invest for yourself and you'll eat for a lifetime without having to rely on someone giving you tips!
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