How to Trade Stocks Successfully

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To trade stocks successfully, you should begin by asking yourself a series of questions. These include what, when, how and why do I intend to buy or sell a particular stock? The answers to these and to many other questions represent important first steps in the creation of a well-devised trading plan. Stocks fall into numerous categories, including growth, foreign and common. Their values rise and fall in response to changing financial, economic and regulatory conditions. Those who consider these and other factors have the greatest chance of success.

Step 1

Create your investment policy, including the stocks you intend to buy, their respective buying and selling prices, and the amount of capital you are willing and able to invest. This document will serve as your blueprint for trading success. Refer to it often and revise it as you gain experience and confidence.

Step 2

Establish a trading account with an accredited securities broker-dealer. Learn how the broker-dealer will charge you for the trades you make before finalizing the account. Costs can take the form of commissions, flat fees, percentages of assets under management or any combination the three. High costs are a drag on trading profits and should be minimized as much as practically possible.

Step 3

Initiate a trade based on your investment policy and the amount of money you have decided to invest. Buying low and selling high is the most common strategy; the higher the selling price the greater the profit. An alternative strategy known as the "short sale" involves selling a stock at price X and buying it a price lower than X. Short selling is done in anticipation of a decline in value.

Step 4

Exit your stock trade once designated profit objectives have been reached. The actual duration of a trade can extend from minutes to months. Be prepared to exit early if circumstances suggest impending danger. A small loss may be preferable to a larger one, especially if it allows you to preserve trading capital until the environment improves.

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