Friday, June 6, 2008

Ten Trading Tips To Contemplate

Entry Strategy is important for making profits and minimizing risk. Knowing when you are going to buy a share will always give you an advantage because, if you buy under the right conditions, then you will have less to lose than if you buy at the very top of the market.

Exit Strategy means having a plan for either taking profits or minimizing losses. No exit strategy means more losses.

Taking Profits is about having a business plan that enables you to make a living from the share market. Businesses make profits for their owners to spend on their lifestyle. Share traders work for themselves and need to make profits to survive. Regularly taking profits on the share market is how traders make their money. Other people will leave their money in a share stock for years and, in some cases, they will see a reasonable return, but more often than not, the majority of people wished they had of sold their shares when they were at their previous highs.

Minimizing Losses is as essential to survival on the share market as taking profits is essential. Cutting losses quickly means that you are not financially and emotionally damaged from a huge loss. A series of large losses can blow your bank or even bankrupt you, whereas a few profitable trades quickly cover a series of small losses.

Key Indicators are the only tools that you need to use to trade successfully. Trading is easier than people realize. For the Technical Analyst, there is no need to be studying reports and having to have an ear glued to the news. Simply using about half a dozen basis indicators is sufficient to be successful as trader. In fact, the fewer the better.

Basic Patterns help you understand how simple the market is to read. There are top formations like a double top and a head and shoulders, which are very reliable and other formations within a trending market, like triangles and pennants that confirm the trend.

General Trends give an idea of what is happening in the market. Some stocks will buck the trend, but most will not. What happens to these stocks forms the trend. Because of this is it profitable to trade the indices.

Small Caps are known as the lower end of town and this is where some very good value trades can be made with these because they often have greater chance for growth.

Large Caps can be excellent investments, but often they are slow movers. Exceptions are when there is a mining boom and large mining companies are growing or some other industry is experiencing phenomenal growth. Meanwhile the other industries might be lagging for years and the companies fully capitalized or over capitalized. Unless you are using options, best to keep away from large caps.

Trading Options provide excellent leverage on large caps. This is the way to make money on these stocks. Owning a share might cost you $40.00, but the option may be obtained for only $1.00. If the share moves up $4.00 and you sell the share, you will make very little because you will have to pay brokerage of the total value of the share and not the $400 profit on the 100 shares sold. On 100 options you would make 300% profit and only have to pay a small amount on each option purchased. The difference in outlay and profit is enormous.

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