General Investing and Stock Trading Rules of Thumb
Avoid trading in the first and last half hour of the trading day when the market is most volatile and when liquidity may be lower.
Be sure to consider your commission charges when calculating your potential returns.
Throughout the year as you rack up more profits, be sure to put enough money in totally safe investments (CD, Bond, Money Market) to pay your taxes.
Sell on the anticipation of an event (Fed announcement, earnings report, election, etc.) when everyone else is buying. When the event finally happens, buying usually slows down.
Don't over commit your funds. When you have all your money on the line, you will find it hard to make rational decisions.
Don't put all your eggs in one basket. Plan to put your money in a variety of investments in a variety of industries, sectors, and geographic locations. A good piece of investing guidance is to not put more than 5% of your total capital in any one investment.
Don't pyramid your profits. When you make a profit, don't plow 100% of that profit back into an investment at the same risk level. Take some money off the table.
Expect to lose money on some investments. It happens. If it doesn't, you're not in the market. If you're diversified, a few losers won't hurt too bad.
Always trade with a clear profit objective and date. That's how you know when to finally get out of an investment. If you hold everything forever, when do you really win?
Be careful when trading takeover candidates. Most of these don't happen and when they do it takes longer than expected. And when the takeover happens, results usually sour. It's hard to put two companies together and make it really work.
Trade based on the numbers and your research. A hunch may pay off occasionally but that's called luck. Do the research and stick with your criteria.
Don't buy a stock just because it is low priced. It could go lower.
Don't sell a stock just because it is high priced. It could go higher.
Invest only in actively traded stocks and options. Set an average daily volume target for your new investments and only trade in those that meet the target.
Know what you plan to do before the market opens and do the research ahead of time. Once trading starts there may not be enough time to do all the research needed to make decisions.
Get your information from multiple sources. One of the most valuable stock trading rules of thumb is to avoid just trading on single source newsletters, newspapers, trading strategies, etc...
Only get into an investment based on your research. Not because the stock is moving up. Not because of a rumor. Not because of the FED.
Always consider your risk and reward on every investment.
Don't use the money you need to live on to make investments (except CD's, Bonds, Money Markets). You want to give your investment time to grow and not have to cash them in a panic to make a rent payment.
Watch out for so called investment gurus, brokers, experts, and pundits who give investing guidance but don't trade. If their advice was right all the time they would be out on their yacht right now.
Forget buying the stocks you see touted in monthly magazines. That article was written many weeks ago.
Trade with the broker that's right for you. Demand the service that you want at a reasonable commission rate. Change brokers if you can't get it.
Be sure to read your execution reports and monthly statements thoroughly. Even the big brokers make mistakes.
Try to learn from your own mistakes. It's okay to make a mistake once but don't make the same mistake twice.
Set a monthly, quarterly or annual goal for your portfolio. If you make it, celebrate. Go out to dinner, on a trip, or buy that new car. You deserve it!
Stock Trading Rules of Thumb - Option Trading Rules of Thumb - Stock Market Rules of Thumb