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Wanna trade on stock markets?

Updated on April 9, 2015

What books?

I choose “Guide to Investment Strategy” by Peter Stanyer and “To trade or not to trade” by Dr. Alexander Elder. The first one is thicker and includes information about bonds and real estate, too. The second one has 62 pages, but it is full of useful information.

Book about investments

Here is the book.
Here is the book. | Source

3 Tips About Investments in Bonds That Apply in Stock Markets, Too

The first advice is to keep different accounts for savings and investments. In this way, you will be less worried if something happens in the market. The second advice: if you are searching for safe investments, try government bonds. For short term (1-6 months), the best are the treasury bill yield. The third advice: invest only the money that you don’t need. The bonds have a deadline when you can sell them, if you don’t want to lose anything.

Study the stock markets

If you want to learn fast how to trade, follow this schedule: study at least 45 minutes before the market is opened and after it’s closed. In this time, you try to correlate the daily events with what’s happening with prices. Also, study another 30 minutes any other topic linked to some of your questions.

What can you study so much? You can research for information about companies, trends or new products. Also, you can planify if, what and how much stocks to buy or sell. Finally, you may calculate your true cost of every trade. After a while, follow only some companies, in order to learn their pattern.

Let me know

Why are you afraid of investments?

See results

Terms and their definitions

Term
Definition
Volatility
risk that a financial active (stock in our case) will change its value.
Big volatility
the value’s active will change a lot in a short period of time
Small volatility
the value’s active is stable, it will change a little into a long period of time
Liquidity
referess to how easy it is to buy and sell the active, without seeing a change in price.
What does it mean volatility and liquidity?

How should you choose a stock?

First of all, the stocks need to have big scores from the point of view of the liquidity and volatility. Secondly, avoid the stocks that are not too traded. Also, avoid the stocks which have prices changed with more or less 20% compared to the last year. You should avoid the very very cheap stocks. Here I didn’t understand why, but I will come back with an explanation.

Now that you gave up with all the bad stocks, let’s take a closer look to the other ones. How is the difference between the bid and ask prices? If it’s small for big volumes of stocks, then those are good for you. If it’s big, this means that those stocks are less traded. Finally, always keep in mind that the volatility’ stocks is cyclicall.

New terms are always welcome

Bid= the price offered by the buyers

Ask= the prices asked by the sellers

Trading habits

For the beginning, take account to the news about the companies from the stock market. Once you become interested into a stock, analyse others, too, which belong to the same domain. If all the domain is growing, yours will grow, too. Also, create a list with stocks and follow them regularly.

How to decide to buy a stock?

Keep this in mind: in the monthly charts, every vertical line is a month. This is the same for weekly and daily charts. How to interpret this?

Well, if a stock is growing into the weekly chart, you may make a strategic decision to buy. After that, move to the daily chart. If it’s growing, too, you can make the tactic, too: decide from where to buy, set a target-profit and a stop-price. Pay attention! If in the weekly chart, the price drops, don’t buy anything!

What about the stop price?

You should decide this before buying a stock, because in that moment you’re the most impartial. How do you decide what’s the good stop price? It depends of several factors:

  • The time you want to keep the stock: if it’s a long period, you should choose a bigger stop order.
  • Stock’s volatility: the stop should be beyond its limits

Also, you should pay attention at two aspects:

  • The stop order shouldn’t be at the obvious limits. You can stick to a price smaller than the last minimum, with 0,9999, or you can pick a price much smaller than the last minimum.
  • The stop order may be only made thiner, not larger

For each trade, note:

  • The entry price
  • The target profit
  • The stop price

I read that is a good idea to keep a journal for the investments and a table. In the journal, you should write on the left what you bought, on the right what you sold and in the middle your feelings. In the table you should note absolutely everything: entries, exits, trade’s dimensions, commissions and slippages. Personally, I write important days, when I need to have stocks to a certain company, in order to receive dividends.

Are trades too risky?

Make them safer. Everyone wants to protect its money, so there are some rules to follow:

  • Risk maximum 2% on a trade. For this, you need to know how much money you have, the entry price and the stop order
  • If the stock’s prices drop with more than 6% at the beginning of the month, stop trading all the month (why?)
  • Decide how many stocks you will buy, with the formula C=A/B, where C is the stocks’number, A=the 2% rule for every transaction and B=the stop order/stock.

Wanna read more?

Although this book has many titles in the bibliography, I choose to search for two. One of them is “Secrets for Profiting in Bull and Bear Markets”, by Stan Weinstein because I still didn’t understand what’s bull and bear in this context. The second one is “The Disciplined Trader” by Mark Douglas because I am very curious about what mindsets I can find from there.

Personally, I applied as many ideas I could. I read the steps when it’s about choosing a stock, I searched for news about companies where I have stocks and tried to correlate them with the prices. I already had different accounts for savings and investments. What I don’t think I could try too sone are the rules to make the stock investments safer. If I would pay only 2% from my money on a stock, maybe I could buy… half of it? Anyway, I can’t wait to start another month, in order to study the market under the 6% rule.


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