Ten Commandments for Stock Trading

If you are an individual stock trader or are thinking about getting into the stock market for your own personal investment, you may sometimes question your decisions or wonder just what you are getting into. Use these Ten Commandments for Stock Trading to help guide you so you know you are making good decisions and to help take the fear out of stock trading.

Commandment One: Make Rules for Buying and Selling

In order for you to make a return on your investment, you must make rules for when you are going to buy and when you are going to sell. Buying and selling at the wrong times can cost you a fortune in fees and unrealized gains. Make sure you are comfortable with your rules. For example, your neighbor might feel the time to sell a stock is when it has increased in value by 45%. You might be more comfortable selling at a lower return.

Commandment Two: Find a Low-Fee Brokerage

Since this is your own hard-earned money you are dealing with and you are likely to do a fair number of trades, you do not want your investment to be diminished by fees. The best brokerages do not charge account opening fees or require you to maintain a specific balance to avoid a maintenance fee. Nor do they charge fees on a sliding scale based on how many shares you are buying and selling at a time.

Commandment Three: Research

Research the companies you are interested in buying. Do not buy the so-called "hot stock ready to explode upward" that you find advertised on a random fax left on your company's fax machine. Do not buy a stock because your accountant got a hot tip about a certain company. Do your own research. With the advent of the Internet, it is as easy as clicking the mouse a few times and you are privy to the financials of thousands of companies.

Commandment Four: Stay Away from Penny Stocks

Do not buy penny stocks. They are not an easy way to make money. Penny stocks are cheap for a reason and a whiff of bad news could plunge this stock into an irreversible downward spiral. In this case, cheap is not easy. Nor is it cheap.

Commandment Five: Stay Away from Trend Stocks