Investing in the stock market is not a casino. You must have rules according to which investing will be easier. Below we present the basic investment rules that every investor should follow.
The trend is your friend
This is the first basic and most important principle. If the company has good bases, it systematically improves its results and indicators, this can be seen in the positive behavior of the exchange rate. It is worth being patient and letting the profits grow in line with the upward trend. If the company bears losses, it is unlikely that the share price will start to appreciate. However, there are speculators on the market who buy shares of such companies with the idea that the trend will reverse in the future. However, this is usually the wrong strategy that can cost you a lot of money.
Do not increase your loss position
Such an investment method is characterized by a very aggressive approach that involves high risk. Most often this leads to the appearance of large losses, reaching the level of invested capital.
You never have a guarantee that the discounted shares will rebound. It is important, however, to understand what is the value of the action. Of course, it is difficult to close the position at a loss because it is in some way an admission of error. Sometimes if the shares are below the line, and you believe in the foundations, it is worth to keep them but you have to be honest with yourself if these foundations are there or if it is only your wishful thinking.
Let the profits grow
If you have a rule that you are selling when, for example, the price reaches the assumed level of 20% or 30%, get rid of it. In a strong market, you can sometimes break your own rule. When the course reaches the assumed price, it is worth considering whether it will go higher. If your shares are getting so expensive, there is certainly a reason for that. It is not worth limiting yourself with any of its principles, and try to get the most out of any such investment. Even if shares in the long term increase 50% or 100% and continue to grow, do not sell them, because you can limit your profits.
Never trade without Stop Loss
The Stop Loss defense order is a safeguard against too severe losses. It is particularly important when playing on futures contracts because it is a safeguard against the loss of the entire deposit.
Do not catch the falling knife
Do not buy shares that are “running head-on”, because when the market is ruled by emotions, it is difficult to determine the scale of declines. It may turn out that prices will drop by several dozen percent.
Choose companies with high liquidity
This will allow you to sell shares at any time.
Play the amount of money you are willing to lose
Do not spend all your savings on investments in the stock market. The economic situation on the market is changing and in the case of sudden turmoil, you can be left without a livelihood.
Do not pack all in one
It’s obvious – everyone points out how important diversification is. And yet, so many people do not apply to this principle. No matter how confident you feel in your forecast, do not base your investment on it. It is good to assume that the loss on one investment can not cost you more than 2-3% of the entire portfolio. Even if for some reason you let a single investment fall by 10%, then due to diversification, the overall loss will not be so painful. It is also important that the number of companies in our portfolio is limited to 20 entities, because you will not have the chance to effectively control these investments.