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“Buy low, sell high” – the classic motto everyone has heard of echoing within the financial realm. Wouldn’t it be great if this outcome could be guaranteed? Unfortunately, it cannot be guaranteed and many people find out the hard way. Yes, huge money can be made in the stock market, but the stock market is often driven by broad speculation and sometimes (depending on who you talk to) unnaturally manipulated by market movers whose goals may not align with yours. Due diligence is key here to making money; as well as stern goals to lock in profits and the willingness to pull the plug when called for in the face of a bleak future. There is an abundance of online resources and tools out there that can help the beginner stock investor become a well-informed active trader. Beware though, if you sign up for free newsletters and hot stock tips, be prepared to receive some extra junk mail.

I won’t lecture you on the principals and mechanics of stock trading because as I alluded to earlier, there are many fully dedicated websites out there that can teach you better than I can, but for those modest traders that would like to ponder and/or reiterate about the fundamentals of what generally helps to turn a profit, please read on.

Everyone follows some kind of a system of trading, whether it is throwing a fine dart on to a massive list of stocks to pick one or analyzing charts in-depth to forecast the future or researching company fundamentals and future exploits, blah Blah BLAH. But, besides deciding on which stock to trade, here are some general tips to help guide you to success that are arguably agreed upon amongst most trading experts:

• Do your own due diligence.. You will hear the term “due diligence” thrown around a lot when it comes to stocks because it is the back bone to smart investing. You may encounter hot stock tips from friends and other investors, but regardless of whether they are good or bad tips you should always be weary of such claims and perform your own investigation before jumping on to the bandwagon. Due diligence is also required on the stocks you currently hold. This is a continual process because the market is guaranteed to change and can instantly impact any of your holdings, so you must be on top of each stock that you hold as well as the ones your are interesting in picking up so you can react quick enough to capitalize on profits or minimize losses. Depending on your comfort level, available time and knowledge of the markets, due diligence can come in the form of anything from:
1. Reading articles related the company’s profile and future projections.
2. Analyzing the company’s current and past financial statements.
3. Analyzing the past trading patterns of this company.
4. Analyzing what is happening to the overall market this company is in.
5. Researching what kind of recent insider trading is occurring for this company.
6. Participating on online forums regarding this company.
7. Discussing this company with friends and other investors.
8. etc… The list goes on and on…
• Diversify your portfolio. This will help to reduce your investment risk by potentially sheltering you from isolated market volatility. If you invest all you have in to one particular stock, or even into many different stocks that are all part of the same market sector (ie. the energy market), then an isolated blow to this market sector for some ungodly reason will devastate your entire investment leaving you possibly with nothing. If at all possible, because not everyone has the balloon of funds to make this thinning approach feasible, select a few stocks in different and unrelated markets to protect your investments from such a catastrophe. Following this guideline, your investments will not be wiped out if something happens to a particular market sector you are in. You also learn about the interplay and affects different market sectors have on each other.
• Set profit goals for each stock that you are in. Being grounded and staying realistic is important – everyone wants to make an easy million dollars off of a single trade and then retire, but how many can? To come up with a reasonable profit margin you should be targeting and selling at, you should take in to consideration the following:
  1. The amount of investment you have made in your stock. If you bought $100 worth of a stock, you should not expect to gain as much from it as if you have bought $10,000 worth of a stock. When I’m setting goals up for my stocks, I do not like to look at just dollar amounts. I prefer to look more at percentages because dollar amounts only tell me the punch line of a joke which is useless without the joke’s lead up to the punch line. Percentages on the other hand tell me what I need the market to do to get to the end results. For example, in the 2 scenarios above, if my goal was to make $500 I would need my stock price (whatever it is, it doesn’t matter since I’m thinking in percentages) to go up 500% in the first scenario, but in the second scenario my stock price would only have to go up 5% for me to achieve the same goal. It’s obvious which one is more realistic and potentially possible. Don’t let yourself dream of profits when the means don’t justify the results.
  2. The amount of time you are willing to wait for a return on investment. There are different types of stock investors out there such as day traders, short-term shareholders and long term shareholders. All of which are looking to make money, but each looking to do so within a different time frame. It’s hard to say which one will make more money because it depends on the stock itself, but the key is to understand which one of these positions you are taking with your stock. This will affect your entry and exit strategies as well.
  3. The potential gains with this company. This one is very subjective and very hard to predict, hence we are talking about buying stocks and not buying GIC’s (Guaranteed Income Certificates). All we can do is make a guestimate based on the information available to us on your company and its future outlook. You can often research similar companies in the past that were in the situation or same stage of development, exploration, production, etc. that your company is in now to gauge how the market reacts to their good/bad news) to see what a reasonable percentage profit margin you should be targeting and selling at.
• If your profit goal is reached, EXECUTE your sell order as initially planned. You may kick yourself for not making as much as you could have if the stock continues to go up, but not as hard as if the stock dropped back down and you lost the only chance to collect your desired profit and end up needing to absorb a loss instead.
• Be willing to take a loss. Stocks are a gamble indeed – don’t gamble unless you are able to take a bit of loss. Sometimes pulling the plug and taking a small loss can save you from losing everything altogether. Unfortunately, there is a common psychological barrier that most people fail to surpass when it comes to trading stocks at the dark end of the spectrum. It’s damaging to the ego to know you’ve picked a dud and have to suffer a loss as a result. I admit I’ve been burnt by this before. But, if your stock dips and continues to dip, sometimes hanging on to the foolish hope that “if I wait just another day, maybe it’ll go back up” is a sign that maybe you are already too late to resurface. Chances are, if the stock dips even more you will then begin to think “well, now I’m losing such a huge amount of money it’s definitely not worth selling”. Before you know it, you are trapped at the bottom where it really is somewhat pointless to sell your stock for the pennies you would get back. One of the best ways to avoid falling into this dilemma is to pre-plan a loss exit strategy before you even buy the stock. The hardest thing still is following the plan, but on the most part you will be better off doing so. It’s easy to have a profit exit plan when your stock gains you money because you are making something, but it is even more important to sit down and plan your exit strategy for when your stock shows no point of return.
• Focus on a smaller subset of stocks. This will allow you to become familiar with their trading patterns as well as market patterns. Everyone is looking for the next 10 bagger, but if you spread your time and effort too thin, then you will not be making decisions based on any real substance. Unless you are a full time market analyzer, it is hard to keep on top of more than just a good handful of stocks along with everything that is going on with their prospective markets. By focusing your due diligence on a handful of stocks, you will begin to recognize what a good buying opportunity is for those particular stocks and understand how the market reacts to these companies. This is especially true for new traders or beginners who have the crazy notion of striking it rich right away (I hope you do though), but focusing on a smaller subset of stocks will also become a good learning experience for those beginners who are new to the dangerous game of stocks. Of course, you should not limit yourself other opportunities. You should still follow new leads on other stocks with bigger potential as well (quite often you will catch such leads while you are researching your subset of stocks), but you should just add the new stock to your subset of stocks to focus on and maybe drop one that is showing little future promise to continue to keep things manageable.

If you are not comfortable with the unsettling risk that the stock market likes to taunt you with or unable to tolerate the downward market swings during inevitable rougher times, then it may be in your best financial interest (and blood pressure) to stick with other investment venues such as mutual funds from a reputable financial institution or other means with less risk intensity. With this said, mutual funds can be high risk as well, but that burden rests on the shoulders of the fund manager who hopefully is better at managing it than you are personally.