Stock Trading Principles For The Average Investor

By: Jesse Profit


Whether you are an experienced investor, or newly involved in trading, entrusting your money to the market can be hard. The typical investor can feel quite overwhelmed by the movement and realities of the day to day stock market. Many fortunes have been made and lost, many times far greater than the level initially invested.

Yet, the common investor can make headway, and will find that the market is not as overwhelming as it may seem at first. There are available to the average investor some general stock trading principles that, if followed, can guide the investor, showing them how to make money in the investment market, while still protecting their initial investment should the market make a downturn.

The biggest stock trading principle that an investor can heed is to avoid what many professionals call churning. Often, a trader who has access to an online account will feel the temptation to actively trade their shares on the smallest up and down, trying to profit from every move while avoiding taking any losses. This type of trading is ill advised as the average person cannot time the market well enough to make a strategy like this pay off in the long run.

Churning often will eat away at the profits that you would otherwise realize in your portfolio thanks to the commissions that brokerages charge to trade your stocks on your behalf. In reality, a person who churns their portfolio will see their small profits eaten away by the commissions charged on every trade, often leaving an investor who would have made money by simply holding on to their stock with a loss.

Doing one's homework on a company before purchasing shares is another stock trading principle that an investor should abide by, even if one deals on a regular basis with the business or employer. The average investor has at their fingertips the stock trading tools available on the internet, which when taken advantage of can allow them to know the financial information and outlook of a company, and keep up to date on the company's movement.

Charts and financial summaries are additional tools that allow both the season and less experienced investor to do a deeper fundamental analysis to compare companies and industries, and give them a better view of whether a firm can make it in the long run. In many cases, a surface analysis of a company versus its competition is enough to provide an abundance of information that will allow an investor to make a well informed decision.

A third of these important stock trading principles is to actively follow, but not obsess, over the performance of your portfolio. Many investors have the \"leave it alone\" attitude that they can simply buy stock, let it sit over time, and make money. Often, this can be the case given the average long term return of the stock market, but earning money in the market is never assured.

Make sure that you are up to date on the general news that is coming out of the companies that you hold stock in, and take note of any major developments in the industry or in the economy that could impact the company in the short term or long term. If you are fairly current on the news that comes out about these companies, you can be better prepared to pull the trigger on a trade and follow one of the best stock trading principles ever stated: Buy low, sell high.

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