[1] Don’t Just Learn the Tricks of the Trade - Learn the Trade!
Trading online, or self-directed investing, has become nearly standard practice for individual investors and traders over the past decade with most Brokerage firms now offering online trading and research services as part of their trading platforms. Interesting concept if you think about; Brokers charging us for doing their job. Let’s hope this trend doesn’t sweep the medical industry or you might end losing more than just your money.
Learning the trade of trading is an ongoing process gained through education and experience. The trick of this trade is to survive long enough to start profiting from that education and experience.
The first place to start is with a general awareness of how online trading and investing works, the pitfalls and risks of investing as well as possessing and knowing how to use the tools of the trade.
Ignorance is not the greatest obstacle to success - The illusion of knowledge is. Surveys show that 9 out of 10 investors believe their chances of winning are "above average" yet more than 80% of them actually lose money. This is simply because they don't have the specific information needed to successfully and consistently make money trading stocks. "If you think education is expensive, try ignorance."
[2] Trading is Fast - Investing is Slow
[2] Trading is Fast - Investing is SlowThe price of some stocks, especially small cap and penny stocks, can skyrocket instantly and without notice then drop just as suddenly, wiping out acquired gains within a single trading session if not within a matter of minutes. In these fast paced markets, with many investors all trying to place online trades at the same time, prices can change faster than those investors have time to react. Add to that standard market and trading delays, and problems can develop (as well as losses) faster than the chance to make a profit.
Executions and confirmations slow down, while reports of prices lag behind actual prices. In these markets, investors can suffer unexpected losses very quickly.
Investors trading over the Internet, who are used to instant access to their accounts and near instantaneous executions of their trades, especially need to understand how they can protect themselves in fast-moving markets.
With a click of the mouse, you can buy and sell stocks from any of literally 100’s of online brokers offering executions as low as a few dollars per transaction. Although online trading saves investors time and money, it does not take the homework out of making investment decisions. Before you trade, not only know what price you are willing to buy the stock for as well as what target price you hope to sell at.
[3] Know Your Exit Before you Enter
To avoid buying or selling a stock at a price higher or lower than you wanted, you need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. When you place a market order, you can't control the price at which your order will be filled.
For example, if you want to buy shares of a particular stock that is being offered at .10 per share, but don't want to end up paying more than .12 for the stock, you can place a limit order to buy the stock at any price up to twelve cents. By entering a limit order rather than a market order, you will not be caught buying the stock above .12 and then suffering immediate losses as the stock drops later in the day or in the weeks ahead.
[4] The Right Tools for the Right Job
If you happen to be one of those one in a million online traders who owns a PC that isn’t running perfectly all the time be sure you know what your alternatives are and how to access them quickly; Most online trading firms offer alternatives for placing trades. These alternatives may include touch-tone telephone trades, faxing your order, or doing it the low-tech way—talking to a broker over the phone. Make sure you know whether using these different options may increase your costs. If you experience delays getting online, you may face similar delays when you turn to one of these alternatives.
[5] Choose Your Trading Style Carefully
What’s the best plan? The one that works! Give plenty of thought to what kind of online stock trading you want to do. Would you prefer day trading, where you close out every trade at the end of each day? How about short-term trading where you hold a position several days at a time? Maybe you'd rather be a weekly trader or monthly trader. Though you can always change your mind, it's wise to have a clear idea of the style of stock trading you prefer BEFORE you start.
Your choice of trading style is especially important from a lifestyle perspective. Day trading usually means you will be at your computer for hours at a time. Longer term online stock trading doesn't require as much attention. As a rule, the shorter the time frame the more intense the trading.
[6] Choose your Broker Just as Carefully
The type of online stock trading you choose to do will determine the type of broker to use. Day traders need high-speed direct access technology. Short-term daily, weekly, and monthly traders can use less sophisticated discount brokers. When it comes to broker fees and other costs, day trading is the most expensive.
[7] Use a Low-Risk High-Reward Trading Method
Stock trading involves risk. Most people inflict serious damage to their trading account before they learn how to win consistently. Though it may not seem glamorous, risk management is essential for successful online stock trading. The only way to get the reward is to control the risk and the best way to control risk is understand, avoid and manage it; that comes with experience, but in this business gaining that experience can cost you money. That’s why it is always recommended that you first begin your trading activities on paper only (paper trading) which is exactly what it sounds like, make your buys and sells on paper only to see how your style would have worked (or not) without risking money while still gaining real market experience.
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