A lot of people are looking to make extra money and some have found that a good way of doing that is to invest. In order to start investing in stocks you have to know the basics of trading stocks. You have to be prepared to take some loses, control risk and know something about investment practices and principals in order to have some success. Don’t expect too much and be careful and you might just be surprised at how much money you can make. Below, we are going to tell you about the basics of trading stocks.
1.Always have a clear trading plan
Always have a plan ready before you start looking for stock to purchase. The plan should look as follows – first do research, then look what stock to buy, make purchase, holding and finally selling stocks. If you follow the rules carefully it will keep you prepared for any unexpected move in the stock market. You should know about how a certain stock, commodity or bond can fit into your portfolio plans and you should expand the portfolio according to the industry.
Keep in mind that to be able to make a sound trading decision you have to choose a trading style with which you are comfortable such as fundamental analysis which is based on the facts of events or technical analysis which is based on mathematics. It is possible to use both styles. The reason behind this is that you will be able to stay with a plan longer if you have an understanding of why you entered into the trade in the first place.
When purchasing stocks purchase those which have what is called a “risk limit,” take note that professional traders will accept a maximum loss of an 8 percent drop from the purchase price of the stock. This is known as an absolute or hard level of loss. Before you begin to spend actual dollars get to know all about trading habits and keep a log of trade entries and exits. You will learn more and better by making mistakes first on paper before making them in reality and losing money. Click here for more info about stock trading.