20 Basic Rules for Beginner Online Stock Trader

1. Educate yourself. As a beginner, it maybe that it is your first time to engage in stock trading, you may or may not have any idea about the business yet. It is foremost very important to invest on knowledge such as the basics of the online stock trading business. This will equip you with techniques and tips for a sound decision-making and eventually lead you to long-term success.

2. Learn the stock trading rules and laws. It is believed that 80% of stock traders lose their money because they did not understand the basic stock trading rules and laws. You have the choice to join the 20% successful ones by learning and understanding these rules and laws.

3. Learn the 2 basic elements in the stock trading business: investing in stocks and trading in stocks. Both can earn you a great amount of money if you understand each.

  • Investing money on stocks is referred as long-term investment while trading money to buy or sell stocks is referred to as short-term investment.
  • A trader makes fast in and out moves of the stock market in just one day while an investor is patiently monitoring an investment for a period of time. He is interested on the trends his investment is making.
  • In trading, what is more important is the rise and fall trends of the stocks. Trends guide a trader to sell or invest on stocks in good timings. While in investing, the investors get the feel of the stocks for a long period of time. It is not moved by several rise and fall of the stocks in the market.
Therefore, it is best to discern more if you want to trade or to invest. Also, if preferred, have separate stocks that you trade in from those that you invest in.

4. Learn online trading. You have to make the Internet your best friend if you want to succeed in the online stock trading business. There are certain online tools that you should familiarize with. These are provided or can be found in your brokerage firm’s website. Familiarizing and mastering these tools makes online stock trading very easy and fun while making a lot of money. Review the desktop free software collection in the site Table of Content.

5. Select your stockbroker wisely. There are certain considerations how to choose a good stockbroker. Foremost, especially for online stock trading beginners, is the low brokerage commission. Another consideration is the speed of execution by the broker. The customer service of the broker or his ability to be available to clients. These things and more are to be considered when selecting a stockbroker agent. Review the article collection in the site Table of Content, related to choosing the best online broker according to your particular needs.

6. Trade with the Trend. You can’t change the weather, but you can set your sails to take advantage of whichever direction the market wind is blowing. Trade what you see, regardless of what you’d like to see on the market.

7. Buy strength, sell weakness. Stocks trading at 52-week highs usually go higher. Stocks trading at 52-week lows usually go lower. Try to buy a stock that is moving up and do not hold a stock while it is moving sideways or going down. The rationale behind this rule is that it is much easier to take advantage of the momentum of a stock in an uptrend than trying to pick bottoms or tops. If you decided to buy a stock, based on its fundamental analysis, wait patiently for the best buying opportunity.

8. Apply Fundamental Analysis for your trading decision. Buy and sell stocks after studying the company financials and financial ratios, among them price earnings ratio of a company. The ratio helps to access the value of the stock depending on the earnings of the company. According to one of the stock trading basics, the price-earning ratio will bring benefits to the stocks of the companies, which have shown good progress in the recent past. Review articles on the Fundamental Analysis in the site Table of Content.

9. Apply Technical Analysis to your trading decisions. There are traders that base their decision making process exclusively on the Technical Analysis approach. Note that it might not be applicable to every situation. Valuable assessment you get from Technical Analysis should be combined from the Fundamental Analysis. Review the articles collection devoted to the Technical Analysis in the site Table of Content.

10. Base your trading decisions on Logic and Reason. Respect the power of your feelings to influence your behavior. Keep your emotions under control while trading. Do not “fall in love” to the particular stock, and always be reasonable, making marketing decision.

11. Follow the News concerning the company, sector, and industry. As per another stock trading basics rules you should buy a stock when you hear positive news on the sector to which the company belongs and on the company performance. This can be due to some desirable regulatory laws or due to some drastic changes in international economic scenario. Remember, that most of the trading movements are based on the economic forecasts and predictions. Try to apply the current economic trends to the possible future development of the company.

12. Plan every trade. Trading blind is senseless. Know exactly what you will do if a stock goes up or down BEFORE you put money on the table. This rule applies to both possible outcomes of a trade: A trader should determine a so-called "stop loss", which is either expressed in a percentage of the price or a fixed dollar amount. If the stock moves down, the trader sells the stock at the predefined stop loss point and therefore limits his losses to the predefined dollar amount. Most traders like to apply a stop loss of 2% - 10% of the capital invested in a stock. The same applies for a so-called profit target: Successful traders know when to exit a trade with a profit, since there is no guarantee that the stock price will rise forever. A typical profit target is 5% - 15%.

13. Stick with an Online Trading Method you have confidence in. Realize that you don’t have to be "right" on every trade. Develop your own method and approach that will fit your personal preferences and produce the results that can be considered as above average.

14. Manage Online Trading risk. Take small trading losses rather than let them become large losses. Never add to a losing position. Many traders failed to follow this simple advice and decided to wait for the stock price recovery, while in many cases, that never happened.

15. Protect your capital. A fundamental rule in trading or in any business is “protect your capital”. This online stock trading rule helps you to overcome compulsiveness in the online stock trading business. It is another form of disciplining yourself especially when you are caught in the online excitement. It is good to be bold but you should know your limits as well, in order to stay on the business.

16. Keep a Trading Log. Even if you never use it for analyzing your trades, your journal provides a written reminder of your ability to stick with your trading plan.

17. Measure and evaluate your results. You’re trading online to make a profit. If your figures don’t add up, stop putting money at risk until you know why your stock trading method isn’t working. Try, fail, try, win! Be flexible, looking for your trajectory in the Online Trading World.

18. Do not follow blindly Technical Analysts advices. It is definitely a good idea to get references and opinions from the leading professionals, but do not consider their advices as prophecies. Remember, that the Top Analysts frequently provide controversial views on the same company future. Besides, Analysts usually employed by the Brokerages, that are not completely objective and independent, causing occasional attempts to manipulate artificially the market prices.

19. Take your time off and relax. You are the key to the success in your stock trading business. This online stock trading rule reminds you that you are also human. You need to recharge, relax and that necessary release of tension and pressure. As a trader, you need to refresh yourself each time you start your trading day. Take a break, do something else. Mental, emotional and physical health is also required to succeed in the stock trading business. Do not loose fun from your trading game!

20. Be patient! Your success will not come overnight. Be patient and persistent, do not loose hope in the most desperate situation, and success will eventually reward you for that.

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