As a beginner in the world of trading and investing in financial products, do you want to read a few simple, but easy-to-implement recommendations beyond the usual banalities such as “let profits run, limit losses”? Then you will find what you are looking for in this article.
- 1. Create two accounts (or even three)
Especially in the beginning, this tip might be confusing. But you can’t start early enough with having different depots for different purposes. However, you must then rigorously adhere to the fact that you do not misuse the depots.
I even consider three securities accounts to be ideal: One for long-term investments (stocks and ETFs incl. savings plans), one for short-term trades and one for real “gambler ideas”. The capital is to be divided according to one’s own risk propensity. A conceivable division would be 50 / 40 / 10
- 2. Do not turn your trades into investments and your investments into trades (at least as a rule)
The temptation is all too great: a trade went wrong, why not hold it for the long term? On the other hand, you may want to hold a stock for the long term, but then can’t resist selling again after a 15% gain in a short time. And whether one then buys in again to pursue the original plan?
You can circumnavigate the problem psychologically better if you work with several dedicated depots. But the rule doesn’t apply without exception anyway.
Imagine (yes, this is said to have happened) someone had actually intended to buy Gamestop long-term in early January to participate in a turnaround story. If now the price increases ten or twenty times within a short period of time, far beyond the level that would have been expected in the long term even with a positive business performance, then you should not follow the basic rule, then the stock may as well get straight out of the portfolio.
- 3. work with partial profit taking
There is no all or nothing on the stock market. It is psychologically valuable and also beneficial to performance if you sell part of a position in stocks that are doing well.
This gives a good feeling, and also opens up room to buy again when the price is weak, and it becomes less likely that the trade as a whole will still run into the red.
- 4. Define the points at which a trade is no longer allowed to run into a loss
Recently someone told me: “I was already up 50% on stock XY and now I’m down. That is not possible”.
Yes, that can’t be! But you can’t just say that you can’t go into the red once you’ve been in the black. Because a trade must also “breathe”, shares fluctuate after all.
However, everyone can define brands for themselves: “If I am in the plus with the trade XY%, I will certainly no longer come into the minus”. Helpful in the implementation of this resolution are partial profit taking and of course stop-loss orders.
- 5. Act with a trading/investment plan, if possible
Trades come about differently. If I just see a good news and spontaneously buy the stock, I most likely have no plan in mind how far the stock could run. Chart traders, on the other hand, who pay little attention to news, are predestined to plan a trade completely.
A trading plan is nothing too complex. Ultimately, you simply determine in advance at what level you want to buy (BUY=entry), where you realize (partial) profits (TP=take profit )and where the planned price scenario is no longer plausible (SL=stop loss), the trade should therefore be terminated. Such a plan can help you to better control the emotions in trading.
- 6. Supplementary buying is not always wrong
Many commentators curse post-buying, or “cheapening” outright. However, staggered purchases can also be part of a trading/investment plan – I often do it myself. In this case, however, you have to make sure that the position sizes are chosen in such a way that the re-buys do not lead to an unplanned overweighting of individual stocks.
- 7. Be careful with stop loss orders
In principle, limiting losses or protecting gains makes a lot of sense. But it can easily happen that you are unhappily stopped out, especially on trading venues that start before Xetra (to take German stocks as an example) and continue after Xetra. You should also keep in mind that the market makers at trading venues like L&S can see the stop orders. If you can manage it time-wise and mentally, you can work with mental stops. This means that you set yourself a price alarm, for example, and then decide again yourself at a certain mark whether you actually sell and if so at what price.
- 8. Research about what you are trading
At least a basic research is always also quickly possible. Is it a professionally pushed stock? Is it a crypto pump and dump? Then hands off! What is the market value and is it at least somewhat reasonable? Am I the last one in this hype, helping to cash out the big players?