To trade and invest profitably, there are many important things you need to know about the stock market. This article looks into some of the most important rules you need to know to make profit in the stock market.
1. Never trust the advice of your broker unless they have successfully traded their own money for some years.
2. Avoid the mistake of buying at extreme high price. You should only buy stock when the price is relatively low with potential to make profit in the nearest possible time.
3. In the stock market, note the direction of movement of price. Price movement is either up or down. And knowing this will enable you enter the market at the appropriate time to enable you make money in shares through margin trading.
4. Change is constant and this statement is also true for the stock market, and this leads to “the trend always changes rule”. Price may be down in one moment and up the other moment. So, when price goes down against you, do not despair for the price may go up in your favor the next moment. All you need to do is carefully take position to take advantage of share price movement to ensure a profitability of your investment in shares and stock.
5. The extent of change in price in one direction determines the extent of change in rebound or fall. The more extreme the move up or down, the more extreme the reverse once the trend changes.
6. The stock market moves in advance and responds to information such as news or impressive fundamental. You need to be proactive in making investment. Waiting to invest only when the signals are totally clear to you may cost you some relative loss in profit. You need to take position before the long directional trend move takes place. The market reaction to good or bad news in a bull market will be positive more often than not. The market reaction to good or bad news in a bear market will be negative most of the time.
7. Know that the stock market is not human and hence not rational. The market is not capable of generating stimulus for itself, rather, it react to activities and manipulation by the players who desire to make money in shares.
8. Learn to take profits quickly and absolve losses quickly if it arises. Trading discipline is a necessary condition to make money in the market. If you are not disciplined your chances of making money in stock will be greatly reduced.
9. Technical and fundamental analysis helps to predict the potential and profitability of some stock. However, successful market timing is necessary for you to know your entry point and exit point for you to make big money from the stock market.