Basics of Stock Trading Strategies

Every Stock Trading Strategy should contain the following steps:
- Determine your Buying Criteria

- Buy your stock when your criteria is met

- Determine your Exit Strategy

Never waiver from your strategy.

Buying Criteria

Your Buying Criteria can be anything you like. It can range from using very complicated indicators to very simple indicators. You can even determine to buy a stock on a whim. but one thing must be consistent with your buying criteria. It must have a high success rate.

By a success rate, we mean that after you buy, the stock should increase in value more often than it decreases. You will never see a 100% success rate, so don’t try to find one.

Exit Strategy

Your exit strategy can involve selling your stock with a little profit or waiting for a huge gain then selling.

But what if it doesn’t gain in value at all? How do you know if the huge gain will come? The fact is that you don’t know. In fact, nobody knows for sure, no matter what anybody tells you.

This is why you must have an exit strategy that does 2 things.

- Protects your Capital

- Creates Profits

Protecting your Capital – If you choose to buy a stock, then the stock drops in value like a rock, you don’t want to go down with the ship. As soon as you purchase the stock, you need to set your stop loss. Your stop loss is a predetermined value of the stock that you have set as your selling price, if the stock decreases to that price. It is the maximum amount of loss that you are willing to risk when you purchase your stock.

You don’t know for sure if a stock will increase or decrease in value after you buy it. But if it decreases in value, you want to be able to get out just in case it keeps dropping.

This is why you must set a stop loss. But how you do determine the price you should set as a stop loss?

This is a personal thing and different people will set stop losses at different levels based on different reasons.

You need to set a stop loss that you are comfortable with and is based on the initial buying criteria you have determined.

Creating Profits

Not only do you need to set limits for your losses, but you also need to set limits or levels for your profits. You need to know ahead of time what you expect to get out of the stock you just purchased. If you purchased the stock at $50, you could for example plan to sell 1/3 of your stock at $55, another 1/3 at a higher level and so on.

Having a strategy before you invest in stocks is a necessity and finding a strategy is a personal thing. There are strategies that are aggressive and strategies that are conservative. The main objective is finding a strategy that you feel comfortable with.