- Remember that your goal in trading stock is always buy low and sell high. There are often times when beginners worry that they'll lose all their money if they see a stock drop dramatically and sell it at a loss. Occasionally this move turns out correct if the company announces dramatically bad news, but most of the time, it's a normal fluctuation in the stock. If you did your homework, then you know how the stock price moves for that company and avoid that pitfall.
- Understand that you don't lose money or make it until you sell the stock. Profits and losses come only after the sale of the stock; don't become excited if it goes either way. If the stock goes up and you want to trade it for a profit, sell half of what you bought if you think it's going higher. This is a conservative way for trading stocks. Make sure that the profit that you took is enough to pay for the trade in and out of the stock. As in the previous section, don't panic if it drops. You don't lose money until you sell.
- Use a technical method to judge the movement of the stock. Stock prices tend to follow patterns. They often move up and down between two prices referred to as the ceiling and the floor, also known as the support and resistance. When the stock breaks through the barriers, it's significant information and time to trade. When it goes through the ceiling, it's time to buy. If it drops through the floor, a sale might be in order.
- Use computer software to track the movement of the stock. Many programs offer technical traders, the ones that track just the price of the stock, training that allows the novice to understand the stock price movement. Candlestick formations predict the future price of the stock based on the high, low, opening and closing price. The candlestick is like a candle with a wick on both ends. The bottom wick is the lowest price and the top is the highest. The top of the candle is the opening price and the bottom is the closing. If the closing price is lower than the opening, then the computer fills in the candle bottom. If it's higher then it's empty. A collection of the patterns to predict future prices are what people use when stock trading.
- Understand the fundamental when stock trading. A second way that people decide when to trade is the information on the fundamentals of the stock. The fundamentals include not just the information on the profitability of the company but also information about the industry itself, the industry that feeds it, the management team and even the location of the company. Stock trading with this information is often longer-term buys than those that trade with technicals.
- Protect your investment with options. An option is an agreement to buy or sell stock at a specific price. If you own the stock and write a put, you sell the buyer the right to sell you his stock at a specific price, the strike price, on a specific date. If the price goes up, the buyer doesn't have to exercise the right. If the price goes down, the writer of the option has to purchase the stock at the set price and the buyer protects his profit. A call option is the right for the purchaser to buy the stock at a specific price on a specific date. If you purchase a call option, it's one way to risk smaller amounts of money and be able to take advantage of the upward movement of the stock.
