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how to trade stocks for dummies

Trading stocks is easy. Making money trading stocks - now there is the challenge!

Opening up a brokerage account, adding money into your account and picking a stock is easy. With commissions so low, its so easy now to buy and sell any stock you want. There is where the problem is.

Unfortunately, any of the "how to trade stocks for dummies" type books fail to mention.

Most trading gurus wont tell you the real secret to successful trading. The smart traders know that its 80% psychological, and 20% risk management. The challenge for most people is they think and feel - and that is what motivates them to place the trade.

How many trades have you made where you bought a stock because someone told you it was heading higher and you better buy now before its too late? How many times have you sold a stock, only to watch it move higher? Why did you sell that stock - was it because you were losing money? Was it because it wasn't doing anything? Was it because you feared you'd lose any of the gains you just made? Those are all emotional trading decisions. You may think you have your emotions under control - but odds are, you are like the rest of us, and have to fight the demons every day.

If you want to make money trading, here are a few very simple things to do:

Set Up A Stock Trading Plan

Most sites ignore the importance of a trading plan - even those who have created ebooks on how to trade stocks for dummies. This will help take out the emotion of your trading. If its not in your trading plan - don't do it. Pretty simple - but i guarantee, you will fight it. Your trading plan should cover every decision making aspect of your trading, including:

market timing - what is the current trend of the market?
stock picking - how are you picking your stocks? if the market direction is long, how are you picking your long positions?
draw down - how have you addressed draw down?
risk management - what stop loss strategy are you using? How have you addressed position sizing? Have you addressed portfolio stops?

Back Test Everything

If you are going to have confidence in your stock picks, you need to be able to back test them. How far back can you go? If you use software like VectorVest for example, you could go back 14 years. That would give you some confidence in your strategy if the equity curve is moving in a nice straight line. What if you make a tweak to your strategy - will it still work? How do you know your tweak will work as expected?

Backtesting helps to give you the confidence you'll need to trade your plan.

Set A Schedule

Unless you are day trading, set aside 15 minutes each night to place your trades. It shouldn't take long to determine the market trend, the size of your positions and then to place your orders. This removes the temptation to look at charts for any longer than you have to. Stare at them too long and you'll start to convince yourself that you need to trade something. Set it and forget it.

No need to worry about futures opening up lower if you're long (means you'll get in at a lower price), because your risk management will get you out if things don't work out. Too many novice traders pay too much attention to the day to day changes in the markets. One day doesn't make a trend, so quit trading like it does. You can trade stocks - anyone can. Only the smart ones who do their homework (ie. know how much they are going to invest, understand how much they are prepared to lose before they exit and know when they are getting out), will make money.

Trading stocks for a living doesn't have to be a dream - it is possible. If you plan your trade, trading your plan is so much easier - and profitable.

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