I was just about ready to buy shares in a stock I spotted the other day. It was called China Automotive Systems, Inc. (CAAS). It had good fundamentals and the stock check up looked pretty good. I don't have a lot of experience buying shares so instead of actually placing an order with real cash, I placed an order in my stock simulator account. In hindsight, I am glad I did because I think it was the next day that they tightened China's monetary policy and the stock market has kind of corrected a bit. Looking at the fundamentals of the stock, they seem strong and this could be just a case of the market trend working against the stock. Whatever it is, the main thing is that whenever you decide to take a position in a stock, you need to have a strong set of rules in place to protect your capital. That first rule is always limit losses. If a stock doesn't do what you hoped it would do, cut your losses at 7-8%. Fortunately, for me, I did it with my virtual account. But doing it while using real money is quite another.
I guess what I'm saying is that if you are just starting to learn how to buy shares of stock, it is important to spend some time laying out your procedures for how you will identify stocks to buy, how you will pick stocks and how you will enter and exit them. While the benefits of paper trading aren't the same as real trading, you can get the mechanics down. Get an idea of the decisions you'll have to make. Once you do that, you'll figure out the answers to questions like, will I put hard stops on my buys or mental ones. Will I sell intra-day or at the end of the day. While real trading with real cash provides the best learning experience, I suggest that you use a simulator for a bit before you actually buy shares online. Once you've set up your system, then start buying shares online with real cash.
The other thing I would recommend is keeping a trade journal that tracks why you bought the shares you did. I'd include:
- A chart of the stock's price and volume action
- A chart of the market indexes
- The fundementals of the stock
- What the stock looked like when you sold it
- How long you held it
- What the result was
When you buy shares, document why you bought them like snapping a picture of its chart so you can remember why you bought it later.
When the market is in a downward trend, I'd then use that time to do post analysis of your trades and what exactly the reasons you bought it to begin with were. I'd also keep track of your winners versus your losers. Deciding which shares to buy today is the easy part. Learning what to do after is where the real work begins in your stock market investing program.
Ty Coon
EmoticonEmoticon