Best Practices and Important Principles Traders Need to Know When Buying Stocks

By Shir Lapidot
Edited by Taj Schlebusch

Published April 21, 2021.

Best Practices and Important Principles Traders Need to Know When Buying Stocks main image

Stock investment is becoming increasingly popular, with online and mobile services making the practice more accessible for everyday people. However, there are several important practices and principles that traders need to know before purchasing stock. In this article, we will go over a few of these.

Be informed

If you’re going to invest in a stock, it's vital to keep up with the latest market news, along with events that can impact price discovery. Interest rates, the macroeconomic outlook, and any particularly critical news items should all be of interest.

Decide on a budget and be disciplined

All investors in stocks should set aside a certain amount of money and never exceed this. Just as gamblers should never chase their losses, this equally applies to the stock market.

Avoid Emotion

The reason algorithmic traders have become popular in recent years is that they remove emotion from trading. As a human trader, this is impossible, but it's important to take a step back, observe your emotions, and refuse to make decisions based on an emotional state.

Hedge your trades

Whenever you're implementing an investment strategy, hedging against your potential losses is viable. This is often utilized by professional and institutional investors.

Make a plan and stick to it

A good long-term stock investor will diligently construct a trading strategy and then stick to it regardless of the market conditions. This is certainly something that would be recommended for beginners.

Be willing to short sell

When we consider the stock market, we inevitably think about the cliche of buying low and selling high, but short selling can be one of the most powerful ways to make a large amount of money from the stock market. If the market looks to be in trouble, strategically shorting a certain stock can be an excellent move.