Questions Personal and Family

What are the Golden Rules of Stock market trading?


John C. Brown

Focus on the good

Making some big bucks is what everyone wants, but it isn't easy and requires a lot of patience along with a lot of research as well as a perfect understanding of what goes on in the market amongst other things. So even though there isn't any fixed formula which yields success when it comes to stock markets, there are some golden rules, which when followed can increase chances of bagging a high return.

Don't go for the herd mentality

Generally, a buyer's decision gets influenced by the actions of the acquaintances, relatives and such. So if everyone is investing in a type of stock, then the tendency for the potential investors will also be to follow the same path. Over time, this strategy will backfire. So if you don't want to lose out on your hard earned money, you must avoid this kind of herd mentality. 

Take informed decision

Remember always to undertake proper research before you go about investing. But this process is rarely followed, and investors usually invest in whatever company they prefer. This isn't the right way at all and is bound to backfire badly. 

Never put your money in more than about 10% of a single stock.

To avoid any form of future shocks, make sure to hedge your bets by not putting all of your eggs in just one basket. Stock selection is also a significant factor which decides the return you will be getting on your portfolios. Also, don't invest the whole of the 10% in a single shot. 

Don't go for stocks which deliver less than 50%

If you are planning along with a term investor, then try to stay far away from stocks which give less than 50% delivery. But traders, on the other hand, should deal with stocks that come with low delivery. The presence of day traders or speculators increases the total volatility of a stock and so the lower the volatility, the higher will be the chances of an increase in the stock price. Even though there are other factors on which it will also depend. 

Invest in businesses which you understand

Don't go for the stock, invest in a business which you can understand. So before investing in a market, know what the business is about. 

Following these golden rules will help you get more out of your hard earned money and make you face fewer traps and pitfalls on your way to investments. 

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