Stock Trading – What Every Investor Should Know
Never try to fight against a trend. It may be tempting to buy a falling stock in order to average your costs. In fact, many investors seem to recommend such a step. In practice, in a majority of situations this only results in throwing good money after bad. Always have a stop loss, for every stock. If your stock moves down, at what price must you definitely sell? If you do not use historical data and technical analysis to arrive at investment decisions, you must have at least a fixed-amount method.
Meaning, before you buy you will have to decide how much loss you can comfortably take on that stock, and stick to it. Never hold on to a stock position that has moved beyond your comfort level. As the saying goes, take care of your losses and the profits will take care of themselves. Keep track of your stocks. Even if your stop loss has been triggered and you have exited the stock, the stock could reverse trend and start a fresh uptrend.
As a momentum investor, you should resort to periodical profit booking. When a stock is losing steam, book profits. Later, if the stock shows signs of picking up momentum again, you can always enter, even at higher levels. Your decisions are based on the potential upside from that price. Always remember that there is an “opportunity cost” to any position. If you have invested in a stock, you have effectively “blocked” that money from being invested in another stock with, perhaps more, potential. Once again, to repeat: Take care of your losses, and the profits will take care of themselves. .
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