Whether you’re a market beginner or a trading veteran, there’s always something new you can learn about trading stocks. Whether you’re looking to trade penny stocks or invest in long-term trading, there are some important things every trader needs to know in order to be successful.
We’ve collected many tips and tricks from some of the top traders, including those who have made millions on the market. Learn from the best by following these tips.
Here are the key takeaways:
- First, create a plan,
- Risk control is key,
- Make money even when you’re not right most of the time,
- Do your research,
- Set aside a surplus to trade with,
- Don’t panic: plan ahead instead,
- Build up your position over time,
- Stay disciplined,
- Be patient, and
- Learn from experience.
In this article, we share our top trading tips from the most successful traders, so you can start making money on the stock market today.
1. First, Create a Plan
Before you begin trading, you need to have a plan. Don’t put your money on the line until you’ve put together a plan of attack. Before investing, you need to know what stocks you’re buying and selling, how much you’re planning to trade with, the timing of your trades, and more. Don’t pick stocks or trades on a whim: it’s all about having a plan that you’ve created and thought through in advance.
2. Risk Control is Key
One of the most common pitfalls new traders fall into is what’s called loss aversion. Simply put, loss aversion means being unwilling to cut your losses. If you get too wrapped up in the money you’ve already invested and lost, you can miss the glaring signs that it’s time to sell and get out of a share, even if you’ve lost capital on it. Get out early when the signs are there so you don’t end up losing even more money on one bad trade.
3. Make Money Even if You’re Not Right Most of the Time
The best traders can make a profit overall even if only the minority of their trades are winners. In other words, they don’t have to bank on being right more than half of the time. In fact, some of the best traders are only successful on 20 to 30 percent of their trades, while still making quite a bit of cash.
Traders can do this by making sure that their wins are bigger than their losses. Successful trading inevitably involves risk. If you’re too worried about making most of your trades winners, you’re probably going to be too conservative in your trades. You’re more likely to be profitable if you’re taking more risks, and that inevitably means more losses — as well as gains. So build some of those inevitable losses into your overall strategy, and keep on going.
4. Do Your Research
Knowledge is Power. You need to keep up with the latest business and stock market news if you’re going to be a successful trader. You need to have your finger on the pulse of the market outlook, changes that the Fed makes to interest rates, potential world events that could drive prices up or down, and much more.
Keep yourself informed on the sectors, industries, and companies that you’re trading. Don’t rely on a single source for your news. Stay up to date with the business news with major newspapers, as well as online trade journals. You’ll have to spend some time sorting through sources and reading to find out which ones are reliable and trustworthy.
5. Set Aside a Surplus to Trade With
Before you get started investing your own cash, you need to decide exactly how much you’re willing to risk. That means setting a cap on how much cash you will put up on each trade. Many of the most successful traders risk between one to two percent of their account or less in each trade.
Set aside a surplus of your total capital, and use that surplus to make trades. For example, if you have a $20,000 trading account and you decide you’re willing to risk five percent on each trade, then your maximum loss per trade will be $1,000. That doesn’t mean you’ll necessarily sustain a loss, but trading with your capital surplus means that you will minimize potential losses and set yourself up for maximum success.
6. Don’t Panic: Plan Ahead Instead
Everyone from newbies to seasoned investors can be tempted to make heat-of-the-moment trading decisions. Plan ahead to make sure you don’t accidentally make an impulsive decision that leads to a loss.
Decide in advance why you’re investing in a particular company. List the reasons that you find a company’s stock attractive (this is where your research comes in), the investing metrics that matter most to you, and how you’ll judge whether the shares are making sufficient progress. This can help you sort out what would constitute a temporary setback vs. a major reason to sell.
Additionally, decide before you invest which factors would make you sell. List the fundamental changes to the business that you determine would affect the stock’s long-term growth, such as losing a major customer, facing the emergence of a major competitor, or the replacement of the company’s CEO. If you’ve planned ahead, you won’t be tempted to panic and throw your well laid plans out the window.
7. Build Up Your Position Over Time
Building up your position over time, rather than rushing in, is the way to go. The most successful investors know that unless they’re trading penny stocks that can be sold quickly for profit, they invest with the goal of reaping the rewards over the long run, over months, years, or perhaps even decades.
There are a few different strategies that veteran investors will use to build up a position over time, rather than going all-in on one or a handful of stocks right away. One of them is “buy the basket.” This means buying a basket of stocks instead of putting all of the pressure on yourself to pick the right one. Having a stake in multiple players means you’ll be positioned to take advantage, if one takes off by doubling down, and you can also offset potential losses.
8. Stay Disciplined
Trading requires discipline. You’re not going to become an expert, or make a bucket of cash, on day one. But if you stick with it, do the work, and learn under the guidance of an experienced trader, you’re much more likely to achieve success. While you’re bound to make a few mistakes starting out, every step of your investing journey will help you learn and become a better trader.
More likely than not, you’re not going to make it big on the back of a single trade. Stay disciplined and put in the work. If you do, you’re more likely to make money trading.
9. Be Patient
Trading requires patience. It might sound counterintuitive, but the best and most successful traders don’t necessarily make trades every day (even if they’re day traders!). Stick to your investment strategy, even if you’re tempted to make an impulsive move. The best traders don’t make a move until they see their predetermined criteria to make a trade. Don’t be tempted to go against your best judgment. Plan your trades, then be patient.
10. Learn from Experience
Even though you’re not second-guessing yourself, you will need to learn from your experiences. Like we said, the most successful traders are going to sustain an occasional loss, sometimes even a big one. When you do lose out, as will sometimes happen, the most important thing is to learn from the experience. Analyze what happened, and learn from it.
The best way to learn from your wins and losses record is to keep careful notes on your trades. Many traders like to keep a trade journal, where they record their trade history, including entry and exist, volume, and price. You can use that information to learn where your strategy has weaknesses and what you can do better in the future. Keeping track of your trades, and learning from your experiences (both good and bad), will ensure that you have no regrets.
Learn more of the best trading tips from our experienced team of trainers. Our team has amassed millions of dollars from stocks, and continue to actively trade penny stocks, biotech stocks, ETF’s, and more every day. They have plenty of experience coaching our clients to success, too.
For a limited time, you can pick up a free copy of our options handbook to start picking up more trading tips. Plus, you can read more about our expert team of trainers, and then schedule a free training at a time that works for your schedule.