(Trending chart courtesy of Wikipedia)
As a novice stock trader, I came to know these most important skills when it comes to making money with stocks:
b. Risk taker
c. Decision based on facts not inferences
f. MONEY MANAGEMENT
Nothing more, nothing less. I do admit I work once for a professional stock/futures trader giving him advices on trading that makes him very successful. Stock trading might be one of your most profitable hobbies or it could become your worst enemy.
I will give my personal experiences on the above important skills:
a. Discipline- stock trading needs an solid, consistent, objective and exactly clear trading system or method. This method is the result of your studies in trading of which you will find feasible. Example of this are based on support and resistances of stocks, moving average method or any technical methods. Discipline results from following this with fullest faith.
Fullest faith? No way, but only by following your trading method will you find success. Trading needs consistence in method. Say you go buy stock at 100 dollars, you want to sell it when it reaches 200 dollars. Your stop is 95 dollars.
Say we are doing intra-week trading here, next week we find stock falls down at 98 dollars. You feel nervous, but your stop still at 95 dollars. Next week again, it falls down to 96 dollars, you will disappointed and immediately sell the stock to prevent losing money further.
But next week, stocks climb high to 110 dollars, then you missed the boat!
This is a typical stock trading scenario, where many traders commit suicide, gets disappointed and loses a lot of money. It is because they lack DISCIPLINE in trading. Do not ever let your emotions govern your trading.
Online stock trading is a place for professionals not for emotional people.
b. Risk Taker – it takes money to make money right? So you have to take risk in trading stocks. There is no such thing as 100% win in trading. All professional traders are also experienced losers. But they manage risk carefully with money management. To be a successful risk taker, you have to quantify:
– How much risk am I comfortable of letting into?
– How much money I want to lose?
– Is that lost money will able me to trade for a long time?
Risk taker quantify risk. So this means that if I enter a trade, I have to leave if i lose this “x” amount of dollars, that’s it. Then stick to it, apply discipline. Also, risk taker are comfortable with their losses, it maybe stupid to hear but professional traders are used to trading losses. They are just comfortable with it. It depends on your risk personality profile. Some do not get alarmed when they lost 100 dollars but for some 100 dollars is a big losses and gets upset. So the best advice: Before you enter a trade, quantify your loses depending on your money management strategy. Or in other words,how much are you willing to accept to lose.
c. Decision based on facts not inferences- let me tell you that “Insider Tips” is useless, if you do not have any measurement of its success. And do it yourself do not let them provide you with false data. This is not to say all insider tips are bad, but I would like to say that it depends on the investor and he should be the one doing the research to know if it is really successful. All must be based on facts , and do not trade with emotions or hunch. I am sure, you will only last one week in trading and quit.
d.Capital – Capital is the 1st step in trading and you cannot trade without a capital. And your stop loss or how much you can afford to lose depends on your capital to make sense. Typical stock trading capital is around 30,000 dollars or more. The higher the capital the better, you can have a wide tolerance in stops. But be careful, only money management can make you win, not your capital.
e.Patience- we all greed for money, but wealth is not a one week activity but takes time to build it. It is why when you have a stock trading portfolio, always think of it as a long term investment. Do not immediately sell stocks if it is not part of your trading plan. Patience is important in trading, it gives you less cost in commission by not over trading.
f. MONEY MANAGEMENT- the last but not the least, but it is the most important aspect in trading. Money management is a skill that enables you to control your loses and maximizes your winning position. It is a must for every investor.