Think About Your Risk Profile

This is one of the first things you should do as a trader or investor. If you are looking for modest returns with the goal of beating treasuries in the long term, you would clearly invest very differently than if you had a big risk appetite and wanted to aim for 40% per year.

Stocks in well established company’s such as Walmart (WMT), Exxon Mobil (XOM), IBM (IBM) are more likely to provide modest returns with dividends than newer growing companies such as Facebook (FB), Google (Goog).

If you have a medium tolerance for risk, you could have a combination of blue chip stocks and riskier growth stocks in your portfolio.

Wherever you are on the risk spectrum, it’s important to decide carefully and stick to your plan.

Choose Your Broker Carefully

Thankfully, there is no shortage of online brokers to choose from, so you can shop around and make sure you are getting the best deal for your hard earned cash.

Some of the most important factors to consider when choosing a broker include the cost per trade, margin costs (if you trade on margin), the platform, customer services, training and education and the trading community.

The trading costs can make a huge difference. For example if you make 100 trades per year and pay $5 per trade, that’s $500 in fees. If you pay $20 per trade, that’s $2,000. On a $50,000 account balance that’s either 1% or 4%. As you can imagine, this difference can mount up to a hefty sum after a few years. You want your profits in your trading account, not in the pockets of your broker.

Have A Strategy And Stick To It

It’s extremely important to have a solid trading strategy. How are you going to decide when to buy and sell? Perhaps you are going to use P/E ratios or technical points such as moving averages or think more about the fundamentals. Whatever you decide, think about it carefully and stick with your plan.

Consider Buying After A Big Correction Or A Crash

Most people fear big corrections and market crashes. Personally I absolutely love them. Why? They present so many fantastic opportunities. During times of crisis and panic, markets usually behave very erratically and move on the human emotions, “fear” and “panic”. All the fundamentals go out of the window.

Look back to 2008 when Lehman Brothers went under. So many fantastic company’s were so cheap and have since gone up in value massively. Granted, there aren’t opportunities like this every day, but markets always have corrections and “panic periods”. At these times, don’t panic, be bold and take advantage of the opportunities.

Always Keep Your Emotions In Check

An emotional trader always loses in the end. You may have heard this before but it’s so true. For inexperienced traders, this is often a very difficult battle to win.

It’s easy to think you are invincible after having a few winning trades in a row. No matter how tempting it is to trade, do everything possible to stick to your original trading plan and don’t deviate. To succeed you need to trade with a solid strategy, not emotions.

Always Be Prepared For The Unexpected

No matter how safe a trade in a particular stock may seem, the unexpected can always happen, so make sure you are prepared in case. One great example of this was the BP oil spill in 2010. I doubt many traders who had purchased BP before the spill expected that to happen! You can easily limit your downside risk using stop-losses.

This guest post was written by Karl Marrion, a stock and forex trader with 10 years experience. He runs the blog WiseStockBuyer

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