Trading stocks for a living can be a risky venture, but experienced traders can be successful with patience, diligence and practice. Success in stock trading relies more on continuing education and practice than finding the "perfect" trading system. Being a successful trader relies on wise and informed decisions more than luck or stumbling upon trading secrets. If you want to be a successful trader, you must be willing to work hard, start at the bottom and diligently work your way up to success through patient experience.
1. Continue to educate yourself on a daily basis. Do not stop studying after completing your degree; there is always more to learn from the market and expert authors. Obtaining a formal education is only the first step in the life-long learning process of a successful trader. Start reading advanced-level books and textbooks immediately after earning your degree rather than trading with the attitude that you've already learned all there is to know. Use your local library as a continual source of free learning material, and keep an eye out for insightful new books written by experienced traders.
2. Keep abreast of financial and economic news every day. Keep television stations like Bloomberg and CNBC on as often as possible at home or at work to take advantage of tips from experts, market trends, specific stocks to watch and breaking news. Find two or three stock-market news websites that you like and read their new stories every day. Being a successful trader requires you to keep up with events happening in numerous industries and sectors at once, as well as national and global economic trends.
3. Utilize both fundamental and technical analysis rather than relying on a single technique. Analyze companies' financial statements and compare financial ratios against top competitors and industry averages to gain fundamental insight. Use advanced chart analysis techniques to spot technical trends worth watching or pursuing. Do not limit your field of vision by relying solely on technicals or fundamentals; use fundamentals to make longer-term predictions, and use technical analysis to spot the ideal entry and exit points for specific stocks.
4. Diversify your portfolio to hedge against risks. Whatever your preferred type of investment is, make sure at least 10 percent of your holdings are in securities with opposite or counter-cyclical characteristics. If you like holding stock in luxury-goods companies, for example, buy stock in discount companies like Family Dollar and Dollar General to hedge against downside risk in the luxury sector. If you prefer high-yield, high-risk stocks, as another example, keep a few stable blue-chip stocks in your portfolio to balance risk.
5. Perform due diligence before making any investment, and don't let marketplace emotions push you into following a trend you know is too good to be true. Take lessons from stock-market crashes in the past, including the dot-com bust in 2000 and the mortgage-backed securities crash of 2008. Avoid jumping on the bandwagon in situations where it seems that everyone in the market is doing the same thing. Pull yourself away from your ratios and charts when analyzing investment options to judge the basic logic and fundamental soundness of each decision.