4 Things to Consider When First Trading Stocks 

Anyone can start buying and trading stocks these days, but that doesn’t guarantee everyone will be successful at it. That’s because there is an overwhelming wealth of information available in the news and online, so making independent decisions can be difficult. 

The accessibility available to the general public to begin trading stocks makes it possible for the “average person” to see returns on their investments. Gone are the days where one had to be a millionaire to see real results. But how can you better ensure the likelihood of a good return on your stocks?

While nothing can be guaranteed, you can become savvier and more knowledgeable in the trading game. Here’s a few suggestions to help you get started. 

Determine your risk tolerance 

As previously mentioned, you don’t have to be grossly wealthy to begin investing. However, you do need to have a brokerage account to fill trades of stocks you want to buy. This means you not only have to have a budget in mind, but you have to have a “risk tolerance” — a.k.a. how much money you’re comfortable losing. 

Typically, over time, the stock market increases in value. However, short-term market fluctuations are always a possibility, so it’s important to consider the potential risks of investment beforehand. 

As the legendary investor Warren Buffet once said: “Risk comes from not knowing what you’re doing.”

Develop an investment strategy 

While the investment playing field can yield plenty of positive results, it isn’t abnormal for the stock market to experience moments of turbulence. These periods can cause relatively “safe” stocks to experience price fluctuations. This can be concerning for new investors, but these moments tend to be short-lived and can be managed as they come. 

Consider putting your money in companies that generate growing revenues and profits over a long period of time. This can give you some confidence knowing the company’s history despite the fluctuation in stock prices. 

As the successful American investor and philanthropist Shelby M.C. Davis put it: “Invest for the long haul. Don’t get too greedy and don’t get too scared.”

Don’t get swept up by investing trends 

If you’ve seen any of the popular investment news articles over the past couple of years, you’ll have noticed a lot of noise about NFTs and cryptocurrency. Instead of looking for get-rich-quick stocks, consider learning tried-and-proven strategies to help you navigate the marketplace. 

Otherwise, you can end up investing in stocks with high volatility, said Matt Choi, an investment coach who runs the trading education platform Certus Trading. 

“I trade a lot of options, and early in my trading days I made the mistake of trading options that had a wide bid-ask spread,” Choi said on Neoadvisor.com. “So although on paper I made a lot of money with those positions, the spread was so wide that when I tried to exit a trade, the spread wiped out all of the profits.” 

Find a mentor 

While information on how to trade and see returns on investments can be found far and wide, there’s something to be said about taking a more “traditional” approach. Finding a mentor to learn from can greatly aid in your development of knowledge over time. 

“All successful traders stand out for their own unique reasons,” Choi said on finetunedfinances.com. However, Choi added that finding someone who shares the same approach could improve your chance for success.

“You need to find a mentor who you resonate with. You need to find someone who trades at a similar time frame or speed, someone who trades markets that you are interested in, and even someone who has similar outlooks in life. If those criteria all line up, then chances are it would be a good fit for you and you will be successful.” 

At the end of the day, you don’t need to be a millionaire or have a doctorate in finance to have success in stock trading. With a little time, patience, and self-study, you too can be a successful stock trader. 

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