If you just decided to start investing in the stock market, you‘ve hopefully done a lot of research and homework in order to make sure that you have at least a little bit of an idea about what you’re doing. That being said, the 2 Tips that we have for you today are absolutely vital for any new stock investor. Know these well, and follow them, and your chances of success will be much higher. Enjoy.
The 1st rule is to never, under any circumstances, invest money that you will need soon. If there’s one absolute fact about the stock market, it’s that it has no guarantees. An investment that might look absolutely perfect on paper might, in real life, be a complete bust. For this reason you must always consider that you could lose every dime that you put into the stock market, and take into account what this could do to you financially if it were to happen.
Although there is inherent risk when investing in stocks, there are ways to minimize major losses and one of those is to never use money that you’re going to need some time in the near future. Here’s an excellent example that will illustrate rule #1 quite well: Approximately 2 years ago Chipotle (CMG) was priced at around $400 a share but, shortly thereafter, short sellers crashed it to $250 a share. Today however Chipotle is back over $500 a share even though, throughout the entire time, they didn’t change a thing. As with many companies, their stock simply grew as it had been doing all along and is still doing today.
If you would have purchased those shares when they were at 400 and held onto them until today, your profits would be quite nice and still be growing. However, if you would’ve purchased when the shares were at $400 but then, because you needed your money, were forced to sell when they were at $250, you would have lost a huge amount of money.
The 2nd rule is to use limit orders when buying and selling your stock. You probably should already know that, when purchasing any stocks, you have either the option to buy via a “market” order or using a “limit” order. When you use a Market order the current going rate for the stock is the price you will pay. Using a Limit order lets you set your price for the highest amount of money you are willing to pay for a stock as well as the lowest price at which you will sell it.
The problem with using a Market order is that you are at risk to the impulses of the stock market, and they can be big ones. The fact is, even on a daily basis stocks can go up and down a few percentage points and, if you put in a Market order at the wrong time, there’s a possibility that you’ll get caught at the high end of the average value of a stock that you purchase. Conversely, you might end up at the low end of the variance that day when you sell.
If you use a Limit order however, you protect yourself from these market fluctuations much better. By letting you set the maximum price that you’re willing to pay for a stock, a Limit order allows you to take advantage of stock prices that are under or over the current market price, depending on whether you are purchasing or selling. This can allow you to gain valuable extra profits.
There are, to be sure, a lot of other excellent rules that you should know and follow when investing in the stock market. Make sure to come back and join us here in the future because we’re going to be bringing you those rules as well.
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