It may appear that stock trading is simple: buy low, sell high, right?
The truth is, earning from the stock market is not easy. You can study all you want before plunging into the market and still find yourself in a string of losing trades. Even buying a fundamentally good stock doesn't guarantee a gain.
There are just so many factors that affect the market. Aside from political and economic issues in and out of the country, you also have to look at personal issues that can make you lose money: fear, greed, hope, ignorance, dependence on others, and dependence on luck.
You need time and experience to be a consistently profitable trader. Sometimes, you can be lucky. But if you want to stay long in the market, you must not rely on luck alone.
Study, plan your trading strategy, check the results, then re-assess your strategy. These are the things that you need to do in order to improve your trading skills and know which strategy works for you.
2. Manage your expectations
Many traders enter the market thinking that they can easily earn 200% - 300% in a short span of time (i.e., less than a year).
The truth is, their target is very difficult to achieve. Even experienced professional traders will have a hard time achieving that. Just look at the performance of pooled funds, which are managed by supposedly very good traders.
I won't say that the target is not achievable. But in order to meet that, you really need to be an excellent trader (unfortunately, many of us are not).
3. Your trading strategy should depend on how much you can monitor the market
When you join stock trading forums, most likely that you'll be able to read some traders disclosing several buy and sell trades within the day involving the same stock.
A newbie's tendency is to buy the same stock and hope that he/she can also profit from that stock. But sometimes, if you have a day job, you won't be able to monitor the price action. And when this happens, disasters usually strike. You suddenly find yourself "ipit much" in that stock.
The truth is, intra-day trading is not for everyone. If you can't really monitor the price action, especially for highly volatile stocks, don't do it. It would be much better to stick to blue chips while you're still learning the ropes.
4. Stock analysts are not always right
While stock analysts from your broker can help you in planning your trades, don't simply bet your house or go all in on their recommendations.
Truth is, they are people too. They can make mistakes in their research, assumptions, computations, and targets. The uncertainty of what's going to happen in the next couple of days, weeks or months can also make or break their stock recommendation. You win some, you lose some. That's just how it goes.
5. Be careful in believing online forum posts
Joining a stock trading forum has its benefits. You'll be informed of news, as well as rumors, on different stocks. You'll also get to see different analysis based on the company's fundamentals and charts.
Truth is, some people use stock trading forums to spread fabricated information and rumors, which they use to hype a particular stock. Some of them even send private messages to newbies to further gather support for the particular stock. Usually, when newbies decide to bet on the "tip", they end up holding the bag while veterans take profit.
With regards to the analysis being shared, be careful also on the recommendations being given. Some of them come from fellow newbies who are practicing their TA skills, and just like to share the patterns they see (valid or invalid), which may lead you to losing trades. Instead of always asking what stock to buy or simply accepting the recommendation of others, take the time to study (attending seminars is encouraged) so you can make your own analysis.
6. There will always be retracements/corrections
It's always nice to trade in a bullish market. Anyone, including newbies, can feel like a genius because almost all of the trades he/she get into bring in big profits. It often gives traders the wrong perception that they are already doing a fine job.
Truth is, you can't expect the market to be always up. There will always be minor corrections and there will be major corrections as well, that will make you doubt your skills, or even make you regret that you entered the market. So before entering a trade, determine whether you'll go short term or long term on the stock you want to buy. Plan you entry price, target price and cut loss price. If your target entry price is still far from the current price, just be patient, or better yet, look for other stocks to buy.
7. Buy on rumors, sell on news
Rumors are part of the stock trading game. They can come from stock trading forums, text from a trader friend/broker, or private message from a forum friend with a "reliable source". Sometimes it can be true, oftentimes, it's just a trap. Rumors can make penny stocks hit the ceiling multiple times, which make it difficult for newbies to ignore.
Truth is, while rumors still persist, more traders get in and speculate on the stock. But once an announcement confirming the rumor has been made, more often than not, the stock price will start to drop. So if you enter a trade based on the newspaper article you read today, you're probably too late to the party.
8. Not all IPOs are profitable
If you just entered the stock market in 2015, you probably have heard the news on the IPO of Crown Chemicals and SBS hitting the ceiling price on the first day, and then gaining some more on the second day. Many of those who subscribed should have been able to earn at least 100% in the first two days of listing. Right now, I can say that there's an IPO craze in the PSE. I've witnessed (and even became part of) the long line of traders who want to buy IPO shares through the LSIP (Local Small Investor Program). IPOs are so hot that even PSE security guards line up to buy shares!
But newbies, beware. Truth is, not all IPOs are profitable. I have my share of experience in IPO flops wherein I ended up selling my shares at a loss (some stocks immediately fell below the IPO price on the first trading day). Actually, I don't have to go through old listings to look for an example. Just look at the case of PSPC, which got listed in 2014. Fundamentally, it's good, but it never really got the support from traders (and even from its underwriter), reason for it to go down below the IPO price on its second day of listing. As of writing, PSPC is still trading below its IPO price.
9. 5K initial investment is too small for a stock trading capital
In the stock market, capital matters. Yes, you can start investing with a 5 Thousand Peso capital, but don't expect to earn 5K, 10K or 20K with it alone.
Truth is, you need money to earn big money in the stock market. It's fine to start with a 5K capital, but if you want to earn more, you need to add funds to your portfolio. Adding funds regularly, depending on your financial capacity, is encouraged.
10. It's inevitable to have losing trades
In case you lose money in a trade, cry if you want to, but don't forget to move on. Losing is part of the game, so try to minimize your losses as much as possible. Ending with a net gain on your portfolio is what truly matters.
Truth is, regardless of a person's trading skills, he/she is bound to experience a losing trade at some point since we are all just speculating on the price movement. There's always a 50-50 chance on winning and losing, whether you're a newbie, intermediate or expert trader. What separates an expert trader from a newbie trader is that the former has a higher winning percentage. In case you always find yourself at the losing end of the trade, improve your skills by reading books and/or attending stock trading seminars. Financial Literacy , Home
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