In the early days of trading, because of not knowing the stock market basics, a beginning trader is likely to encounter greater losses than would an experienced trader who has learned to “read” the market signals and anticipate possible reactions of individual stock, or the market in general, to external events that cause anxiety and uncertainty when they occur.
The objective of this stock market basics article is to alert the would-be stock market trader to such situations and to especially emphasize the need to preserve working capital.
The objective of this stock market basics article is to introduce the uninformed stock market trading newcomer to some basic guidelines that can help minimize risk and conserve working capital, essential for success in trading.
At the beginning, it should be recognized that there is a difference between stock market trading and stock market investing.
The trader is usually much more active than an investor in buying and selling stocks, holding the stock positions for shorter periods in the attempt to take gains when they do occur or to minimize the inevitable loss that is part of speculative trading.
Yes, significant financial gains can be made when trading in the stock market, even to the extent that an individual can become financially independent.
Success is possible but it requires a serious attitude and some diligent effort in order to learn even the stock market basics. A knowledge and understanding of the various unofficial trading guidelines can help manage risk but it is necessary to take the action called for in those guidelines to be successful.
For the newcomer to trading, it is often difficult to make a decision to take a loss, even though the most basic guidelines state the need to cut losses early in order to preserve capital that will be required to enter further trades. But that is what learning the stock market basics is all about, to be aware of what can happen and when facing an unexpected trading situation, knowing the course of action suggested by the guidelines.
Preservation of capital is a fundamental of good risk management. To do so, entails taking losses, small losses that prevent losing a large amount of capital or being wiped out completely. Some of the most famous traders of the past have confirmed that as their most important guideline in building their fortunes.
Profits and losses occur every day as stock prices fluctuate for various reasons, some related to factors related to the individual company and others due to external events, such things that range from natural disasters to political events and financial uncertainties at home or abroad.
The possibility of taking a loss is always present and experienced traders understand the risks involved but it is the overall performance that can be assessed over a suitably long periods that is most important. It is not a matter of more winning trades that losing trades but the total amounts of the losses versus the gains that the termites profitability over the given period of time.
Learning about the stock market takes time and effort but it can pay off hansomely and prevent despair. My best suggestion for the beginner is to obtain a copy of William J. O’Neil’s book “How to Make Money in Stocks: A Winning System in Good Times and Bad”. Anyone seriously wishing to learn how to trade stocks profitably ought to read this book and others from the same author.
Information of interest to the stock trader can be found at A Course of Action, and for a list of additional relevant topics see Stock Market Basics,. Unique version for reprint here: Stock Market Basics For Beginning Traders, Cautions And Suggestions.