by Fine Existence

Created on: May 02, 2008

There is a lot to learn on investing in stock markets. To trade successfully in the stock market, it takes alot of discipline, discipline, and discipline. Once you are determined and set on following the following guidelines, you are on your way to huge earnings from the stock markets.

1. Open a trading account. If you have not already done so, you should first invest a bit of time comparing the broking firms out there. Be sure to compare their services and fees involved for each trade and other maintenance fees. You might even like to open more than one account to gain access to the research materials and/or exclusive services or software available to members only.

2. Decide whether you are a trader or investor. Are you hoping to invest for long term (holding stocks for months to years), mid-term (weeks to months), short term (days to weeks) or day trader (hours to days)? This will determine your choice of stocks.

Long term investors tend to look at the outlook of the industry, overall performance of the company, dividends payout and its growth potential. You might even wish to analyse where the company stands against its competitors.

Short term and day traders tend to trade based on the market sentiments. The focus is more on current news and potential company announcements in the next few days. As these traders do not hold the stocks for long, they lock in the gains or profit-take once their targets (initial or revised) are met.

3. Decide your entry and exit points BEFORE you enter into any trade, be sure to know how much you can afford and/or are prepared to lose from this trade. This is known as your stop loss. If your stock breaches the amount or percentage you are prepared to lose, be sure to terminate that trade before you watch it go to zero. I once heard it from a very accomplished trader that trading in stock market is all about capital preservation, i.e. you ensure that the capital for investing is preserved. This will allow you to go a long way in growing your portfolio.

You can adjust your stop loss as your stock price grows. Stop loss amounts or percentages can be automated in most trading accounts today.

4. Diversify. As the old saying goes "Do not put all your eggs in one basket". Do not put all your money in one industry. There is a tendency that feathers of the same kind will flock together in the same direction, as is exemplified by the recent ups and downs in technology stocks.

5. Revise your targets accordingly. After you have happily entered your trade, keep yourself informed with the news relating to the stock and the general market sentiments for signs of reversal. There might also be booster signs to push your stock above your target exit points.

6. Do not let greed overtake your senses. Lock in those profits once prices have reached your targeted/revised target price. Do not let greed take over. There is always another trade opportunity elsewhere.

Investing in shares is a very interesting self-learning adventure apart from being a wealth growing opportunity. Keep learning as you invest. I am sure you will find it as fruitful as I have. Happy investing and wealth growing!

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