A stock market trader has to follow certain rules. And these rules apply to every trader, whether they’ve been trading for decades or freshly joined the stock market domain.
One of the basics of stock market rules is that the trader must always be on a lookout for the strongest company (strong meaning financially strong). This company must have excellent management skills, one of the fundamentals for the company to increase in size. So although you might feel tempted to buy a share in a certain company just because you are familiar with it or it is from your hometown, don’t. it’s not a good idea.
Read on to find out the essential stock market rules.
- Stay focused on the price:
Well-informed traders pursue a very special set of criteria. Their center of attention is on a single consideration: price. For example, if the company has poor management skills and if circumstances call for a short step up in its price, it’s a good buy for the trader who knows when to get in and when to jump out for a quick profit. On the other hand, a well-run company can step out of its comfort zone, to a price where suddenly there are more willing sellers than buyers. Price is about to plunge, and it’s the short seller who will reap the benefits.
- Staying liquid is the best:
If the trader is interested in the much more realistic view of stock market basics, here are some guidelines to know about. Firstly, the stock has to be dynamically traded — at least 100,000 shares in daily volume. If it stoops below that level, the risk is that of being stuck in a position simply because there are no traders on the other side. Secondly, it is essential to stick to tickers with a price below $50 just because the liquidity necessities above that level become distracting for most traders.
- The trader isn’t smarter than the stock market:
When the main focus of the trader is the price, you don’t need to worry about how irrational the stock market is. All a trader needs to do is just identify the areas where supply and demand are more likely to be out of balance and then buy or sell when price enters these areas. Once the orders are filled, the price will change direction regardless of what else is happening in the economy or the market.
One of the most important rules is to practice. It is foolish to jump right in without experience and then lose all your money. After all, practice makes perfect.
Investing or speculating in the stock market is a useful career or even a hobby. But jumping into it headlong without a clue will not give you any benefit.
If you are determined to increase your profit, there are plenty of tutorials online on how what and when to invest. Take the time to go through it and watch your shares soar.
