One of the best pieces of general advice I can give to beginners who want to learn how to trade stocks is to pay about $15 for any of the William J. O’Neil’s books on trading, particularly The Successful Investor, published in 2004 by McGraw-Hill. It would be money well spent from the trading stake.

The second piece of general advice is to follow the 5 basic trading rules that help to limit risk and maximize gain

The third piece of advice is to learn how to read stock charts

William J. O’Neil, author and entrepreneur
The O’Neil books support and explain the above-mentioned basic trading rules and how to read stock charts and the importance of being able to do so. Here I will just briefly add enough to introduce all of those specific topics and will assume that, if you seriously want to learn how to trade stocks, you will be obtaining copies of those easy to read informative best selling books.

William J. O’Neil is a multi talented entrepreneur who is the publisher of the Investor’s Business Daily, a business newspaper covering all matters relating to stocks and trading. He is also a best selling author on the subject of investing in the stock market, and is the creator of an investment strategy called CANSLIM. He is a successful trader in his own right and there’s probably more but that is enough to show the depth of his knowledge and success in his field.

The 5 basic rules for those learning how to trade stocks
There are, of course, many other rules to manage risk and provide general guidelines in how to operate in the stock market, buying and selling stocks.

These are the rules that should be followed by the beginning stock trader and to ignore them will almost certainly result in unnecessary losses to the investment stake. Those experienced traders who are successful have their own perhaps modified versions of these rules and they also use other methods of protecting their downside by hedging and other more sophisticated routines. But first things first.

The 5 rules are, in no particular order of importance:

1.    Do not trade against the trend
2.    Do not buy into a falling market or average down
3.    Cut your losses
4.    Let your profits run
5.    Use the stop loss and the trailing stop to accomplish rules 3 and 4.

The Stop Loss and the Trailing Stop
A stop loss and a trailing stop are separate instructions to a stockbroker from the owner of a stock that, when activated, initiate the sale of the stock by way of a market order pegged at a target price specified in the original stop order.

1. The stop loss is used to specify the downside limit a stock can fall in price and if it should fall to that point, the stock is to be sold at the best prevailing market price obtainable through an at the market sell order. The stop price can be nominated in dollars below a given price, usually the purchase price, or it can be set at a percentage below the given price of purchase price. Typically it is set to sell if a stock falls by 8 to 10 percent. To hold on to a stock falling in price is to invite significant losses. When stocks start to fall in price, buyers become fewer, with less demand and an added supply the stock will probably continue to fall even more.

2. The trailing stop provides a way to capture an upside profit if a stock begins to fall in price after having reached a higher price, as all stocks do eventually.
It is designated as trailing because the stop price, whether a dollar amount or a percentage, moves up in unison with the rising stock price and is only activated if the stock price falls back by the specified stop amount. The higher the stock price ascends, the higher will be the stop price trigger point.

Stock Charts
To put it in simple terms, stock charts provide a graphic visual form of the trading activities of stocks and stock indexes over prior periods of time up to the present. Repeating chart patterns of stock activity that can serve as indicators of future actions can be easily be discerned when they begin to again repeat themselves. There are many different chart patterns and indicators that tell many different stories from which predictions can be made based on the way patterns developed in the past. They then become an aid in making  buying or selling decisions and the timing of when those decisions can be acted upon. Chart interpretation is a valuable skill that can verify, or otherwise, trading decisions that ultimately lead to improved performance.

There is much for the beginning trader to become familiar with, to understand, and to learn about the processes involved in trading stocks.

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  5. Successful Stock Trading Advice

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