15 golden trading rules in the stock market
Online trading has picked up in popularity over the last few years. It’s easy, it’s convenient, and as some would say, it’s even the quickest way to grow your assets. If you too find yourself interested in the world of the stock market but don’t know where to begin or how; here are the 15 trading rules in the stock market that will help you get started.
- Choose the right broker– The first step for a beginner is to open an online trading account with a respected and reputable stockbroker. While your returns will be largely dependent on the investments you make; choosing the right online broker will positively impact the performance of your portfolio. You will have access to their research, market trends reports, charting tools and overall guidance from an experienced entity.
- Do your research– As any expert will tell you, keep an eye out for emerging trends, market evaluations and factors that affect the market. These, in turn, will also have an impact on your stocks’ performance. You must continuously monitor the companies whose stocks you’re interested in and make informed decisions based on facts and backed by authentic research
- Choose businesses, not stocks– Simply investing in the most popular stocks may seem like the way to go but it’s best to invest based on a company’s brand name rather than popular shares. In simpler terms, before you choose the company you want to invest in, evaluate the company’s stock history, strengths and weaknesses, it’s financial data and reputation in the market
- Rely on logic, not emotions– In a fast-paced environment like the stock market, you have to make quick decisions to invest in stocks or trade the ones you own. In these situations, investors often find themselves hesitating to decide due to their inability to control their emotions, mainly fear of loss and greed to make more money in a short period. But if you want to master this craft, getting your sentiments under control and making decisions based on reasoning and logic is highly important
- Use the stop-loss order– One of the essential Stock Market Rules is – Make use of the ‘stop-loss’ order. Stop-loss order is an automatic order to buy or sell a stock once its price reaches a specified level. You can set this to suit your requirements, and it serves as protection from excessive losses
- Don’t borrow to invest– The volatility of the stock market can be worrisome for even the most seasoned stockbrokers and traders. That’s why another important Stock Market Rule is that you only invest surplus funds that you can afford to lose. Losses are not a given in the stock business, and neither are gains. But there’s never a way to be sure.
- Have a diverse portfolio– The stock market sees many ups and downs. From economic events to political ones, everything has the potential to affect the market and therefore affect your stocks. To protect yourself from such market crashes, you must diversify your portfolio. Invest in various categories instead of buying multiple shares in the same category. Allocate your budget across multiple sectors and market capitalisation. Moreover, always get to know your shares before making purchase decisions.
- Take calculated risks– One of the golden rules of intraday trading is – Take risks but be smart about them. Determine your capacity to take risks based on your age, beliefs, commitments, dependants, etc, and invest wisely. Monitor the stocks, do your homework by reading up quarterly, monthly and half-yearly reports of the shares in which you’re interested. Be alert and leave emotions behind when you make your investment decisions.
- Do not trade with an unclear mind– The stock market opens every day. So, if you’re unsure about what stocks you want to trade or invest in, leave it for the next day. Keep an eye on the market trends instead. An informed decision is better than a quick one.
- Listen to facts, not rumours – Make decisions based on research and facts. Stick to stocks that are regularly traded in large quantities and are covered extensively by analysts. Avoid random hot tips before investing in stocks.
- Knowledge is power – Educate yourself on the various aspects of the stock market, watch out for news and events about the market or that may affect the market. Keep a wish list of stocks you’d like to invest in and keep yourself informed about the performance of these companies. Watch business news regularly or visit reliable websites for authentic updates on the latest market news and trends.
- Be a realist – Nobody becomes a millionaire in a day or two. Trading in the stock market can be extremely profitable and win you an optimised portfolio, but at the same time, it can also bring you losses, risk and a whole lot of stress. There are no guarantees in finance, so be realistic about your profits, losses, and investments.
- Avoid herd mentality – Very often, an investor’s decisions are influenced by the activities of his family, friends, neighbours or acquaintances. If all of them think it’s a good idea to be investing in a particular stock, the chances of mass investing are a lot higher. But this strategy is bound to be unsuccessful in the long-run. What you must invest in, is a decision influenced by many factors like your budget, your risk potential, your commitments and how much loss can you afford to incur. Make informed decisions instead of doing as others do.
- Measure your results – Most investors start trading in the stock market to earn profits. After you’ve traded and invested for a while, pause to measure the results. See if the figures add up to a decent profit. If they don’t stop putting money at risk until you figure out what mistakes you’re making and how to rectify them
- Trade with the trend – The market is moving in a direction for a reason. There’s no controlling or preventing it. But you can surely take advantage of the on-going trend and give your portfolio an added boost. Learn to interpret and understand the market trends, read news from reliable sources to know how this trend is affecting the stock market, and make your decisions accordingly.
One of the greatest things about online trading is the fact that the game itself lasts a lifetime. You have years to hone your skills, improve your game-plan, strategise better and build the portfolio of your dreams. Armed with this list of 15 golden stock market rules, you’re all set to open your online trading account and conquer the world of stock markets! Get. Set. Trade!