We can’t all be John Paulsons or Warren Buffetts making billions trading on the stock market, but if you’re interested in making serious cash by trading stocks and shares, there are plenty of steps you can take to give yourself the best possible chance of trading successfully.
First things first, to make money in stocks you need to stay in the market long enough and if you can do this, the stock market’s annual average return is around 10% - a return that beats all savings accounts going!
Every trader is different but you will should be able to check every item off this list before you start trading:
- Have a plan
- Reduce expenses
- Analyse your performance
- Analyse the markets you’re trading in
- Know what you can and can’t control - get in and out at the right time.
- Know your attitude to risk
- Give your strategy time to work
- Be prepared to lose money
- Find a good teacher & practice
- Know what kind of investor you are
- Enjoy what you do
At Trade Room Plus we believe that successful traders are made, not born and that in order to make money in stocks you need to learn how to trade properly and be willing and able to spend money to make a profit.
This includes knowing when to take risks, how to analyse business trends and financial statements of the companies you invest in, how to determine how much stocks are worth and how much value a stock actually has, really understanding the markets you trade in, and have excellent discipline and self-control.
How to make money in stocks
If the world of trading doesn’t fundamentally suit your personality, approach to risk or the way your mind works, it won’t work for you. If you like solving puzzles, have an analytical mind, enjoy numbers, patterns, forecasting and trends to make informed decisions and have time to dedicate to honing your craft then trading could be the financially rewarding route for you, and this article aims to take you through some key considerations for those looking to make money in stocks in more detail.
10 Things To Consider If You Want To Make Money In Stocks
Have a strategy
Before you jump head first into trading stocks, it pays to have a trading strategy. This is a plan that helps you to conduct trades in the markets you operate in that are verified, quantifiable, consistent and objective, and is the method of buying and selling stocks based on predefined rules that help you make the trading decisions that bring you closer to your aim of making money in stocks. Read our article on how to build a trading strategy here.
Work to reduce expenses associated with trading by finding the best deals available for transaction costs. Transaction costs are paid to banks and brokers for their services in your trades and they can quickly add up - making them an important factor in your net returns.
Analyse Your Performance To Educate Yourself
Keep a trading diary so you can analyse your historical trades and find ways to improve in the future. This will allow you to answer questions like ‘Which strategy is your most profitable? Or “Which Instrument is your least profitable?” This kind of knowledge is important if you want to be in a stronger position for your next trade. We use and recommend the Edgewonk trading journal at Trade Room Plus.
Analyse The Markets You’re Trading In
You must stay on top of the markets you trade in with fundamental and technical analysis. Fundamental analysis looks at how much value a stock has and how much it’s actually worth by analysing the financial statements of the company. Technical analysis focuses on reviewing historical price movements for trends and finding patterns that will help you spot indicators that could help you predict where the price is heading next.
Know What You Can And Can’t Control - Get In And Out At The Right Time.
The only thing you have control over when trying to make money in stocks is when you buy and when you sell. Everything else is out of your control so focus on perfecting your trading executions with rock-solid discipline and healthy psychology on proven trading strategies.
Know Your Attitude To Risk
Do you like steady long-term gains or thrive in chaos? Knowing how you react to risk is important in trading as it will determine the best kind of instruments you are suited to trade in. If losing money hurts and you are very adverse to risk, you may be better with long term index / bond investments and those who tolerate risk well could be suited to daily futures and options trading. The more tolerant you are, the more aggressive decisions you can make but you should never trade more than 5% of your portfolio and should always calculate the level of risk involved in each trade so you can make an informed decision on whether or not to proceed. Find out more about the risks of trading here.
Give Your Strategy Time To Work
The least risky way to make money is to stay invested for a long period of time so that you can ride out any short-term blips in the market - so you should never write off a trading strategy due to one loss.
Instead, assess any strategy over the course of at least 20 trades to judge its true ‘win-loss’ ratio before adjusting your strategy. The main reason for trading strategy failure is nearly always psychological – fear of loss, fear of missing out, greed or anticipation which is why you should always ensure your trades focus on simple strategies and trading discipline rather than an emotional reaction to what’s going on around you.
Be Prepared To Lose Money
There is no doubt that you will lose money when trading so you should only trade what you are prepared to lose and consider long-term investments that give you a chance to make any short term losses back.
Find A Good Teacher & Practice
You wouldn’t learn to drive without an instructor, so why learn something as complicated as trading on your own? The old adage, knowledge is power couldn’t be more relevant in the world of trading. The best way to learn how to make money in stocks is to be taught by those who can demonstrate that they do it well. At Trade Room Plus we specialise in showing our members how we trade in live trading scenarios, have trading simulators to test your trading nouse before you invest real money and have plenty of online tutorials.
Master Your Markets & Invest In Things You Understand
Are you an IT buff or massive motorhead? Knowing the industry that you trade in is important as you will be more in tune to factors that will affect it and ultimately your investment, meaning you can make timely trades. Once you’ve become competent and profitable at one instrument, then move onto another. There’s no harm in monitoring a new instrument and not trading it until you start to learn its personality and nuances.
Good traders are disciplined, learn from their losses, are willing to learn new strategies, able to make their own trading decisions, and are proactive. As you’ve seen in this article, there is no quick route to making money in stocks and shares and you need to put in the time to learn the rules of trading, build a strategy suitable for the market you’re operating in and have a healthy attitude to risk.
If you’re ready to dive into trading with the support of experts who can show you exactly how they trade live in front of you, try Trade Room Plus for a FREE 14 day trial - or if you want to keep reading, our Master Trader training series is packed full of trading education videos and guides bursting with insider trading knowledge and tips to get you trading successfully.