Some stock trading tips for new stock traders and investors.
Ah… Your first time. You’ll look back on the day you first got started in the stock market and laugh at all the ridiculous ideas, strategies, and beliefs you initially had. But if you’re reading this article, it’s because you haven’t yet had the pleasure at mocking your own inexperienced days. So for you first time investors, I want to give you some tips that I know first hand will help you ease the awkward transition into the investing world.
Stock Trading Tips For New Investors and Stock Traders
1. Learn As Much As You Can About Investing
Before you commit your money to the stock market, it’s best to understand how the stock market works and to get educated in the realm of investing (or trading). The internet is full of free resources for this sort of thing. In fact, many of the most recognizable online brokers now offer a lot of educational material and investing tools on their sites which are made freely accessible to their customers. Some online brokerages we like because of their affordability and strong customer support are TradeKing and Zecco. You may want to consider signing up with one of these brokerages if you don’t yet have an investment account.
2. Invest With Small Amounts of Money
When you’re new to anything, you want to start off with as little difficulty, risk, and pressure as possible. Investing is no different; so investing with a small amount of money is the best way to start off for the first time because it lets you get a feel for the stock market while keeping you safe from any major losses. So with a small amount invested, your potential money lost is minimal but your potential knowledge and experience gained is unlimited.
3. Don’t Invest What You Can’t Afford to Lose
This should be common sense, but many first time investors seem to forget this golden rule. Even if it’s a small amount, the money you invest should not be the money you rely upon to maintain your standard of living. Doing this will lower the pressure you’ll feel while you invest, and will protect your financial health in case you somehow lose every penny.
4. Try Not To Let Your Emotions Control You
I have a feeling this tip may be pointless since it’s like telling a kid going to Disney Land for the first time to not get too excited. Nonetheless, you must try to build discipline so that your emotions will not cloud your mind. Greed, Fear, Anxiety, Excitement, Depression, Frustration, Happiness, etc. — all will be emotions that you will experience during your investing career. It will be your job to overcome these emotions and invest with a clear head.
5. Be Realistic
No matter how much you’ve prepared in advance for your first investments in the stock market, you’ll never be experienced enough to be infallible. Many investors take years until they shake off their amateur tendencies and learn how to become disciplined enough to invest logically and ultimately successfully. Keep this in mind when you first start off, because it’s statistically bound to be ugly for your portfolio in the first year of its existence, no matter who you are.
6. Embrace Your Failures
You are bound to take some significant losses with your investments. It’s not a question of if, but when. With that in mind, don’t look at your failed investments as a means of discouragement, instead look at them as lessons. If you take these failed investments and analyze them to see what you did wrong, you can form a list of rules to invest by that will help you to never repeat these mistakes again.
This guest post was brought to you by The Investor’s Journal, a blog written by Adam Freedman, a self-taught, young investor (in his early 20’s) who began investing in the stock market in 2005 upon opening an account with TD Ameritrade and who’s been studying and learning all he can about the markets since then.
Image Credit: AskMen.com
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{ 20 comments… read them below or add one }
Most novice investors should stick with mutual funds and ETF’s. Trading individual stocks is too risky and akin to gambling for the vast number of beginners out there.
You shouldn’t let your emotions control your decisions, but when you see your first gains it’s ok to enjoy them for a bit 🙂 I recently opened a bond fund (still just my second real investment) and it dropped a little at first but lately it’s been going up every day – probably due to the drop in stock indexes. I know not to make decisions based on daily information but seeing things change every day and the (currently) frequent gains adds to the fun. I just need to remember that it’s staying invested for longer periods, which shouldn’t be too hard.
Indeed Silicon Prairie it is definitely very exciting when you first start out. There is a huge rush you feel regardless of whether you make or lose money.
That’s the reason I stated that advising new investors to attempt to control their emotions is somewhat futile, but you should try anyways. =)
I’m with Money Blue Book—they probably shouldn’t try active trading. That’s just asking for trouble.
Although I am also firmly from the camp of investing using mutual funds and ETFs, I find it enriching to hear what other people’s views are and like to present different philosophies on investing on this site.
A while ago, I wrote a post on my evolution as an investor — I also started out with spending a lot of time studying the nuances of the stock market and building individual stock portfolios (that unfortunately saw a lot of change in them as time flew by). After many years, the strategies I employed shifted to emphasize mutual funds and index funds. This happened just as my net worth rose.
To Money Blue Book and Mrs. Micah, I agree that trading isn’t a wise move especially with beginners. If only I had people telling me this 20 years ago….
I started trading with stocks and it went well for a while. Unfortunately, like Alex said, it’s only a matter of “when” and not “if” you are going to lose money!
Maybe I should have started trading EFT’s and mutual funds at first, but the money I lost in my very beginning was the most powerful (and painful) tool of learning in my trading experience.
We should not write off investing in individual stocks.
Investing in MF and ETF also calls for some kind of study and investigation on selecting the right fund.
As we get familiar and comfortable with the studying and the investigation, we can start applying our skills on individual stocks.
Bit don’t forget Adam’s rules..they seem very sound.
Really nicely put together article, the rule were really helpful to see his percpective.
hey great article.. and you might of just got a new reader (to the guest poster)
Good article on how to invest. One thing always keep in mind while investing in stock that, whichever and how much you invest, no matter, play games with your mind and not just rely on what your mind suggests. And yes, as Silicon Prairie is saying, one needs to invest skillfully and not with emotions and do your research before investing, this is very important.
Excellent post! Thanks for sharing it. I plan to include your article in my weekly carnival review this Friday.
Best Wishes,
D4L
Some good simple investing tips. Make sure to continue to add to your investments over the years you will be suprised how much money you can make in the long run.
Another tip is to look at what the market is doing, then do the opposite. My best trades have been buying blue-chip companies when they have had some scandal or financial crisis. They more often than not bounce back after 6 to 12 months.
But I’d only limit this technique to top 200 companies.
Personally my parents have always invested in real estate because it has historically always gone up in value. It gives you more of a return also because you get about the same interest as any other thing you invest in if not higher. But at the end you invest more, because you borrow more money than you would normally invest in something. Also you actually own part and/or all of it at the end. At the end its better to do something than nothing.
I like the etfs and closed end funds better than mutal funds. I also want one sthat pay dividends that way i get some money every quater or month.
if anyone is interested in opening an online trading account, Personally, I think sogotrade is best among all online brokerages. You can get a lot of free trades: about 100 free trades with 500 minimum deposits. It has very good customer service, it also has live help, and you can chat with representatives about any question. After that, only 3 dollar for each trade, pretty sweet when compared with other online brokerages.
Not sure about how great sogotrade is since it’s been rated the lowest in the latest discount brokers survey by SmartMoney. For more details on brokers, you can check my TradeKing review and ETrade broker review, which cover a couple of the highest rated online brokers around.
Reading and researching as much as possible about investing and a company you picked to invest in is a great tip. Start paper trading first and after all the losses you will experience with paper money you can then start losing real money ;). I also want to disagree with john and suggest Think Or Swim as your online broker.
Fantastic tips. Tip #7 Create a System that outlines what is a good buy and what is not. This way you are not just guessing on every trade that you enter and you can develope some sort of consistency.
Also if you are having trouble making money you can look at, what in your system caused you to lose your money and how can you turn it around.
This is foward and to the point. No confusion! Thanks.