5 Finger Tips before Trading Stock

Below are 5 tips to always look before executing a trade. Even if one rule is not satisfied, think again before executing the trade. There are high chances you will end up messing up if they are not followed. Take a print out of this and display it near your computer from where you are doing your trading.

Finger Tip 1 – Do not Chase a Stock

When you are about to execute a trade, think a second about this rule. Is this stock going up like crazy and you are thinking you are missing the ride? If so, this is not a trade for you, take your hands off the execute button and click on cancel button. Stock can go up crazy for lots of reasons and chances are that you will end up buying in the peak. Same when the stock go down crazy, don’t jump the gun before understanding what is going on. Wait for things to settle before entering into that stock. Always remember there are lots of opportunities out there.

Finger Tip 2 – Never Trade early or after hours

What is the time now? If the time is not within 10:00am-3:30pm EST (for US trading times), do not execute the trade. When the market opens there is lot of volatility, so you may end up in the wrong side of volatility. Things normally settle down after first 30 minutes. Similarly last 30 minutes may be crazy as the day traders may be busy closing their books. Never trade in Pre-market or Post-market. Let us leave them for day traders.

Finger Tip 3 – Look out for any Current News

Before executing a trade, just look to see if there is any new news for the company. You don’t want to buy a stock and realize that they have come up with some bad news. I normally set an alert to buy a stock if it comes down to certain buy price. I should not be executing the trade if price hit my buy price due to the bad news. Not all bad news are bad but before executing understand what is going on.

Finger Tip 4 – Always execute only 1/4^th of the trade at a time

It is very difficult to time the market so do not put all your money in a single order. Divide your money into 4 chunks. Buy only first chunk when you think the price is right. If the price comes down by 5% then buy the next chunk and so on. This way you will end up buying the stock 10% cheaper. If the stock does not come down after you buy the first chunk, good for you, you did make profit on the money you invested but did not gain anything for the remaining 3/4^th, you can put that money here if choose to or elsewhere. Most of the time I am happy to make profit on the first chunk and rarely get all my 4 chunks executed. Remember, if you are buying the 4^th chunk, it means the stock is not doing good or you did not pick the price right and if you have not broken them into chunks you would have lost 20% now.

Finger Tip 5 – Only buy the stocks that you have watched

Do not buy stock that you don’t know about. If you get an exciting stock, first put it in your watch list. Watch it, read it, breath it, love it and then buy it. Your watch list should contain all the stocks that you want to buy or have brought and keep watching it every day. There will be a point when you will know the low point and high point of that stock. You can now easily say if the stock is at its peak or at the bottom. This habit will help in timing the stock better and also will help you if you are an options trader. Remember, your watch list should contain a diversified list of stocks; never put all the eggs in the same basket.

Disclaimer: The author makes no representations or warranties about the accuracy or completeness of the information contained in this blog. Any links provided to other server sites are offered as a matter of convenience and in no way are meant to imply that the author endorses, sponsors, promotes or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated. Neither the information, nor any opinion expressed, constitutes a recommendation to purchase or sell a security, or to provide investment advice. There can be significant risk of losses in trading securities, options, futures and foreign exchange. Readers must consider all relevant risk elements including their individual financial circumstances prior to trading. Options involve risks and are not suitable for every investor. Prior to buying or selling an option, an investor must consultant a financial adviser or broker. The author is not licensed financial planner, financial advisor, stock broker, investment broker or investment advisor. Before making any trades, check with a financial planner, investment advisor, tax advisor or anyone else that controls your finances to make sure option trading is right for you. The information provided on this blog should not be construed as individual investment advice.