Five tips for beginning DIY traders!

There are a lot of things that you have to learn when you first start trading. While most people tend to focus on things like how to evaluate stocks there are actually a few things that are much more important. The five tips here are things that will make you a much better trader.

  1. Money management is critical: This is the most important tip for all traders; you have to make sure that you limit any losses that you take. You are going to make bad trades, everybody does, the key to your success is how you deal with them. You should be able to make money even if you are wrong more than you are right. You do this by limiting your losses when you are wrong and maximizing your profits when you are right.
  2. Know when to exit a position: Traders put all kinds of thought into deciding when they are going to buy but almost no thought into when they are going to sell. The decision on when to close out a position is actually more important than the one to buy in the first place. Before you buy make sure that you have a plan in place for when you are going to get out of that position.
  3. Don't be afraid of losses: There are going to be times when you make a bad trade, it happens to everybody. It is important that when you do make a mistake that you get out of the position. This is something that a lot of people won't do. They are afraid to take a loss so they just hold on in the hopes that things will turn around. This usually doesn't happen and they end up taking an even bigger loss.
  4. Don't get greedy: The opposite of holding on because you expect things to turn around is people who refuse to sell when they have made a profit because they want to get out at the very top. In most cases this just results in them riding the stock back down. You should have decided beforehand when you were going to get out of your position, when this happens sell and move on.
  5. Stick to the plan: Before you start making trades you should have a plan, both for when to buy and when to sell. While most people understand this and create the plan many don't stick to the plan. It can be hard when there is actually money on the line to stay disciplined which is why so many traders fail. Trying to avoid losses or hit the very top of the market is a recipe for disaster. Decide ahead of time what you are going to do and then do it. Once it is done just move on and don't worry about it, you can't change it at that point anyway.