So now that you have decided to begin trading stocks, it would be helpful to get some online trading tips from someone who’s very experienced in online stock trading. I would advise you from the beginning to not get too overwhelmed or intimidated by the whole process. It is really not rocket science at all. If you just use your common sense, then you will be just fine.
I write this article assuming that you have not selected an online stock broker yet, as we will address some of the nuances involved in selecting one to suit your needs. The good news is most of the popular ones are pretty damn good and in the end, it will just come down to your personal preference. I have my preferences, but yours may differ from mine. I will say this – I have used most all of them for a variety of reasons – most of those reasons were personal to me and will have no bearing at all on your choice.
These online trading tips are based upon many stocks trades that I have done over a period of many years. I started during the dot com boom and have seen many ups and downs, so it is my hope that you get something out of this article.
Most Important of All Online Trading Tips
If you haven’t done so, then it would be wise to sit down and spend some time figuring out your ultimate trading style. This is critical to your success. I know that when experienced traders tried to tell me this, I just thought they were making a big fuss over a trivial matter. Believe me when I say that you need to do this.
In a very basic sense, you need to understand if long term or short term trading is most suited for your personality. And there also a trading style that is in between those two known as swing trading – that is my personal style. You see, trading is psychological, and if your emotions control your decisions, then go ahead and flush your money down the toilet now.
How about this, you just laid down $4000 last week for 100 shares of a great stock that everyone in your office says will double by next year. Today, that stock is worth only $3000 – what will you do now? Let it ride? Sell it? Buy more? These are the kinds of decisions you will have to make. You must know in advance what that decision will be, so that you make the right one to suit your style and objective.
NOTE: If the above scenario were my trade, it would have been sold when it was worth $3600. I risk no more than 10% on any trade.
Find an Online Broker with a Compatible Console
When you trade online, you need to fully understand the trading console that your broker offers. And this console needs to suit your trading style and your needs. You ask what does that mean?
For instance, if you are day trader who likes to scalp stocks, then you must be very particular about the trading console you are seeking. Basically speaking, the shorter your time frame of trading, the more particular you will be in selecting a trading console. If you are a long term trader who ride trends, then you will probably be fine will most any console as long as it has the basic options.
The first basic option you will need is being able to set an automatic stop loss price on your console – which will be filled automatically. And we are talking about a buy or sell stop. Next, you want to be able to set limit orders and trailing stop from your console. These options are really great because they make moves for you and require no human intervention.
Do Not Forget to Factor in the Trading Fees
This online trading tip is not telling you to compare fees and select the cheapest one. Rather, I am telling you to factor the fees into your overall cost. I am a believer in getting the quality you need to perform a task at a higher level. In other words, if one broker gives you something that you think will be of great benefit to your success as a stock trader, then do not be afraid to pay a bigger price for that. The important thing is succeeding.
You must remember that most of the time, the commissions that are being quoted is for a one way transaction. If they quote a $9.99 commission, it means they take the cost out when you buy the stock. And then they take it out again when you sell the stock. So it’ll cost you almost twenty buck for a round trip transaction. Sometimes, you will find brokers that quote the commissions as a round trip fee. It usually means they are trying to attract more short term traders.
Do Not Be Seduced by Margin
As a beginning stock trader, do yourself a favor right now. Make a promise to not trade with margin. You will love me in the end for giving you this online trading tip. If you are not familiar with the concept, then you let me briefly explain. Margin is where your broker loans you money to buy more stocks – giving you more leverage.
Most of the time, margin allows you to buy roughly twice the amount of stock with your money. So if your trading account has $10,000, then you can buy roughly $20,000 of stock. Sounds great, huh? Well, there’s a catch. Margin is wonderful as long as you are winning, but when your stocks lose money, you are losing your own money and not theirs. And you are losing yours at a faster rate.
So after a rough few days in the market, let’s suppose that $20,000 of stock you bought is now only worth $18,000. The problem is that you still owe the broker the $10,000 he loaned you. Worse still, the conditions for having margin requires that a roughly 2:1 ratio be maintained, but your side of the deal is now only worth $8,000 which only qualifies you to hold $16,000 of stock now.
This is known as a margin call and you must sell off $4000 of that stock immediately to abide by your agreement with the broker. And they will not care that you are taking a loss on the stock when you sell.
Conclusion
I hope you will embrace these four online trading tips that I have shared with you. Do not take them lightly as they are the result of many years of trading. And they are most suited for those of you who are beginning to trade stocks online. I do have many more online trading tips that I will be sharing in future posts, so please stayed tuned.
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from Investing Insight http://investinginsight.org/online-trading-tips-beginners/
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