Trading SharesPosted on August 30th, 2010 William No comments
So you've decided to get into internet share trading! Congratulations! Now it's time for some tips to help make this a profitable experience rather than a depressing one.
It cannot be stressed enough that before you begin trading shares directly, you need to understand exactly what's going on. You should be confident that you know exactly how to place an order and what will happen when you do. Fortunately, this is no longer particularly difficult, as many places offer you the opportunity to trade shares online, complete with detailed documentation on how to do so.
Aside from knowing the basics, you also want to have a plan of action. Will you be a buy-and-hold investor, or do you plan to get into day trading? Here at Twenties Retirement, we recommend the buy and hold approach; find a good stock, invest in it, and then focus your attention elsewhere, rather than trying to time the market. There are two entirely different approaches. If you're day trading, you just want to get in on a stock that's on the way up and sell it before it heads back down. If you're investing, you want to find a stock with good long-term prospects, get in, and enjoy the ride.
It goes without saying that if you're looking to invest long-term you want to start by doing your research; learn as much as you can about the company you're interested in. Once you've decided it's a good bet, before you start actually trading shares, decide at what point you'll get in and at what point you'll sell. It's never a good idea to make buying and selling decisions in the heat of the moment; you should always decide in advance. Of course, you can revisit these decisions later on, but not during a rally or sell-off; that's when you're excited and not thinking rationally.
Of course, this doesn't mean that you shouldn't react quickly to new information. If you're an expert in the field to which the company you plan to invest in belongs and are one of the first to hear about new developments, you may be able to analyze the impact more quickly than a professional investor who isn't well-versed in your field, in which case you may be able to beat the crowd if the news justifies changing your stock position. If you're in a field where new breakthroughs can have huge effects, it's probably even worthwhile to make sure that the service you use for trading shares follows your instructions in real-time; some services offer extremely cheap trades but batch them at the end of the day or several times per week, in which case you may lose your first-mover advantage.
While we recommend holding stocks long-term, exactly what that means is not defined. While we certainly don't recommend trading shares constantly (if nothing else, even low fees can add up quickly), that doesn't mean you can't get out of a stock after several months; this is particularly true if you buy into a company specifically because you expect a rapid increase in stock price after recent news is analyzed, which then occurs. If you've already gotten the profit you expect out of a company and now have a better opportunity for the money, go for it! Just don't rush; there will always be more opportunities for trading shares, but money lost is gone forever!