11 Ways to Become a More Successful Stock Trader

Do you know the difference between a stock trader and an investor? I didn’t know until I lost a ton of money of some unsuccessful trades.

At that point, I learned that a trader is someone who “speculates” on a stock in an effort to make a great gain – usually a short or medium-term gain. An investor is someone who “buys a good company” through its stock and looks for a longer-term gain.

This article is about stock trading. Here is that I learned the hard way.

1. Write a Trading Plan, sign it and follow it religiously.
What’s a Trading Plan? It’s your partner in your effort to become a more successful trader. When you write your plan, make it as specific as possible. For instance, your plan should spell out:
A. How much of your trading account are you willing to spend on one trade
B. What type of stocks to consider
C. The reason a certain stock is a smart buy now
D. What share price you’ll buy that stock at
E. What rate of return you’re shooting for
F. How much loss you’re willing to take
G. What share price you’ll sell the stock at

After you write your plan, sign it to show that you’re committed to it. Then follow it to the T.

2. Match the risk you’re willing to take with the return you want.
Nothing messes up your trading more than not having your risk match up with your intended return. If you want a high return, know that you’ll need a high level of risk to get it. If you’re not comfortable with that level of risk, don’t make that trade.

3. Check your ego at the door.
Never ever ever bring your ego into your trading. Don’t think that you know something that The Market doesn’t know. Don’t think that you see something in the numbers that isn’t there. Don’t think that you can move a losing trade your way just by “hoping”, “wishing”, “giving it more time” or “giving it good karma”. In addition to your ego, also keep your emotions out of your trading.

4. Check your stocks on weekdays, plan your trades on weekends.
Don’t get into the “I need to make a trade today” habit. Use your weekends to research and plan your trades. Then follow your stocks every weekday and execute your trades during the week when the conditions meet the conditions you set up in your Trading Plan.

5. Be a newshound.
Know what’s happening with your stock, such as upcoming earning reports, company news, management news, industry news and economic news.

6. Never take a stock tip from a friend.
What does your friend know about that stock? Enough said.

7. Never take a stock tip from a stockbroker.
Remember, a stockbroker is in it to make money – for himself. The old joke is that your broker is in it to make you “broke-r”. But a lot of times, that’s not a joke. That’s reality.

8. Never take a stock tip from someone on TV.
All of those money shows on TV are very entertaining. And that’s why they’re there, to entertain. So, never take a stock tip from them. But you can use them to learn about certain stocks. Just know that you’ll have to do your own research and make your own decisions.

9. Trade with money you can lose. Never trade on margin.
When you set up your trading account, make sure that it’s money that you can lose. Remember, this is not your investment account, it’s your trading account where you “speculate” on stocks. This also means that you should never borrow on margin to trade. Why? Because that’s not money you can lose, that’s somebody else’s money that you have to pay back.

10. Count your gains only after you sell your stock.
Don’t play the “My stock made money today” or “My stock lost money today” game on stock that you still own. You haven’t made or lost money until you close your position in that stock.

11. Take your profits.
You can’t make money if you don’t take your profits. So, don’t get greedy and stay in a trade just to make more money. Stick to your Trading Plan and take your profits when your stock hits the share price that you’ve committed to sell it at.

These are just a few things that I’ve learned over the years. And I just wanted to share them with you because you may find something here that turns you into a more successful trader. Let us know what you think.