If you haven’t done so already be sure to read part one of our “How To Become An Expert Trader” series of articles. In it you will learn the 4 very key things every beginner should know before they start trading.
In this article, which is part two of the series, we are going to dig a little deeper and discuss 5 things you must understand if you truly want to be a successful trader.
#1 – Stop Loss Orders Are Your Friend
Stop loss orders are similar to insurance in that they protect you should one of your trades go very wrong. This means you have the ability to prevent a major loss from occurring. You set the order up to fit your needs and it will automatically be triggered when certain events take place.
Using stop loss orders will automate your trading, make it easy for you to stick to your strategy and remove your emotions from the equation.
#2 – Why Type Of Investor Are You?
There are basically two types of investors. A growth investor and a value investor. A growth investor is one who focuses on investing in companies that have strong earnings and sales growth. They are looking for profit margins that are above average and a return on equity of 17% or more.
Value investors on the other hand seek out stocks that are undervalued and have P/E ratios that are low. Understand what type of investor you are will help you craft a successful trading strategy.
#3 – Volatile Types Of Investments Should Be Avoided
Options, futures and foreign stocks are all considered volatile types of investments. Options are extremely risky because you not only have to be right about the direction the stock is going, but you also have to be right about the time frame in which it takes place.
Futures are risky because of their very speculative nature. Unless you have a few years of successful investing under your belt, it is best you completely avoid futures.
#4 – Stocks Never Go Up By Accident
When stocks go up it’s happening for a reason. Generally speaking it’s because a big investor such as a pension fund is buying in large quantities.
#5 – The Fewer Stocks You Own The Better
Instead of investing in as many stocks as you can, focus on a few high quality stocks instead. This way you aren’t spreading yourself too thin and you will be more likely to make a decent profit.