- Avoid stock tips. You are merely purchasing a stock with information you have no way of confirming. Logic dictates that buying a stock without knowing the financial condition, the legal condition or the market condition of a stock is foolish. Buy stocks of companies you know and whose products you know. Buy stocks of companies who are in industries where you understand the macroeconomic factors that influence the price of their stock. Buy stocks of companies with outstanding management. Buy stocks with a notion that if you had to own them for 10 years you still believe they would find their way to a strong financial result.
- When buying stocks, understand the benefits of diversification, money management and loss management. Do not let small losses become large losses by employing stop limits or stop losses into each trade. Limit losses to no more than 8 percent of your invested capital in the trade. Use discipline when buying stocks. Don't risk large percentages of your portfolio in a single stock. Focus on diversification by buying many stocks so as to allow a smoothing of the average daily volatility of the market. This will put you more at ease with your choice of stocks and control the possibility of losses that quickly reduce the portfolio because of a large string of small stock trading losses.
- Buy stocks so that the bulk of a stock rise is captured. Day trading requires the trader to be right a very high percentage of the time to offset trading commissions and the spread between the bid and asked every time a buy or sell order is placed. Day traders try to make many small profits. Learn to use fundamental and technical analytical techniques to find proper buy and sell points so as to capture the major portion of a gain, not the random trend. Long-term stock buyers earn a historical average of about 10 percent a year, of which 40 percent comes from dividends. Most day traders do not make money.
