Trading stocks can be a good source of additional income, especially if you’re looking to diversify the way you make money. A recent study by Statistics Canada shows the top 1 per cent of Canadians by income have a diverse portfolio of investments as well as traditional assets such as properties and bank accounts. The elements of their success offer good insight on how to get on a similar path.
On the surface, learning how to buy stocks could be daunting. The people who make up the world of trading have their own language, seemingly obscure sources of joy and despair while they act on a mysterious understanding of the forces constantly at play in the market.
But don’t feel discouraged, because countless investors got their start just by sitting at home and began with the basics; which is what we’re going to lay out for you in a series of blog posts.
Keeping your shirt by having a trading strategy
Fund managers with years of experience stress the importance of taking a measured, disciplined approach to stock trading rather than improvising while your money is at play in the market. Every investor needs a trading strategy, and it includes the following elements:
- Define your conditions before you buy a stock with a consistent research method, which include different forms of analysis (fundamental or technical, or both)
- Define your risks and project your profits before buying in. How much can you afford to lose? How much do you expect to win?
- Implementing automatic triggers to sell once your shares reach a certain price, called a stop loss for when it goes down and a limit order for when it goes up. They are designed to limit your losses and protect your profits while preventing you from deciding based on your emotions.
- Determine the maximum amount at risk on all your ongoing trades, or “open positions.”
- Determine your maximum daily or weekly risk before you stop trading. This is to prevent a trader from digging a deeper hole by trading to make up for previous losses, and thus creating more risk
- Keeping a journal in order to track your progress in detail, which helps you learn from your successes and mistakes
A trading strategy lays the foundation on how you should approach the stock market, but there is much more to learn which include many interesting facets of trading. Learn how to buy stocks by reading up on research methods, the role of stockbrokers, analyzing stocks, understanding market trends and many more.
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