15 Stock Trading Tips – Continued from Part I
8. Sell How You Buy
Traders and investors spend a lot of time researching stock purchases, and when done right, pick up excellent stocks at excellent times. The problem is that buying doesn’t make your profits, selling does. Put the same amount of time and effort into timing your exit as you did into making your entry. No matter what Ronco tells you, you can’t just set it and forget it.
9. Track Your Trades
Tracking your performance isn’t all about the gains and losses. Track your reasoning for buying a stock, why you bought it when you did, why you continue to think it will rise, and why you sell when you sell. Once your trade has been made, look back to see if it was the right call. Did your timing work as you expected? Was here something that you can learn for next time? A lot can be learned through your wins and losses, so take the time to make notes in a journal and then look back at how you did.
10. Research! Research! Research!
Think about how many hours it took you to earn the dollars you’re investing or trading, and then think about how many hours you’ve spent reviewing your investment or trade. Don’t put 300 hours of work on the line after after 30 minutes of watching BNN! I recommend putting at least 5-8 hours into researching a company before deciding whether it’s something you’d be interested in investing in. Realize that I probably only buy 10-20% of the stocks I review, so we’re talking about 25-80 hours of research before I find that winning investment. Then, it comes down to following the stock until I believe it’s the time to buy, meaning more hours tracking price, volume, news and technicals. The good thing about putting all of these hours into research is that you will become familiar with more companies, their strategies, and be able to more quickly identify the winners from the losers.
11. Develop a Focus
Don’t try to be a master of everything. Institutional firms have certain people focus on certain sectors, companies, or strategies, and you should do the same. I think it’s hilarious when amateur investors are trading stocks, bonds, futures, options, and ETFs across multiple sectors, in multiple countries, using multiple currencies, and multiple trading strategies. Yes, diversification can be very valuable, but don’t try to be a Master of the Universe or you’ll look like a Master Jackass. You’ll notice that my recommendations on TSXTrader.com focus on Canadian Stocks in those few sectors that I am knowledgeable about. I’ve dabbled in oil futures, but only because I spend so much time following oil prices while making my other investment decisions. In other words, choose a focus for your trading and seek your diversification using long-term, defensive methods. I diversify my total investment portfolio using ETFs & Real Estate, and keep my trading dollars focused on winning Canadian companies that I know and understand.
12. Stay Calm
Don’t make rash decisions. When news breaks, don’t get caught up in the market’s madness. Huge price changes are not always real, so don’t get faked out and lose your mind and your cash. Flash crashes happen. Terrible market opens happen. Yes, bubbles burst and bear markets can break hard – but it’s over days, not minutes. When the pressure picks up, step back and figure out your plan. Look at volumes, resistance levels, and all of those other factors that you would normally look at before making your trade.
13. Think Taxes
Taxes should be key considerations when choosing where to put your money. I will be making more posts on tax considerations, but the two main things to think about are when you are going to be taxed, and at what rate. A main consideration is that you’re taxed on 25% of dividends, 50% of Capital Gains, and 100% of Interest and Income. Using your own expected tax rate, think about what you’d have to make in Capital Gains on a Growth Stock to meet the returns you’d receive on a safe, high yield dividend play. When it comes to timing, you also need to consider when you want to pay these taxes. The nice thing about long-term investments, is that you defer your tax payments. If you’re in a winner, you can let that money continue to accrue in an abstract form of “compounding.” An additional consideration is how you may trade your RRSP or TFSA accounts differently from your cash accounts to maximize the tax benefits of each form of account.
14. A Small Win is Better than a Big Loss
I’m definitely an advocate of letting your winners run, but that doesn’t mean you shouldn’t start taking money off the table if things are looking overbought or you believe there is the possibility of bad news. As my buddy Tommy always used to say at the poker table, a small win is better than a big loss. Look at your risk profile, and if it’s too much, take some money off the table. You don’t necessarily have to sell out of your entire position, but consider taking profits on 25% or 50% of your position to lower your overall risked cash.
15. Choose Wisely
This last tip somewhat sums up all of the above points. You don’t manage a mutual fund or an ETF, so you’re not being forced to buy or sell anything. Wait until you find the stock you want at the time you want it, and make the trades you believe in. Enjoy!
