Quick Guide to Smart Stock Investing

Everyone wants to make extra money in the stock market. Whether it be to facilitate an early retirement or just to have some extra cash in your pocket the goal is the same. The problem is that most individual investors accomplish the opposite and lose their hard earned money. Many common mistakes are made time and time again. Most individual investors can use a guide to smart stock investing.

So what are some main tenets of intelligent investing? The first occurs the day you open your brokerage account. Many sacrifice a good portion of their profits, or add to their losses, by selecting the wrong brokerage account. Check the commissions and all other fees before selecting the right account for you.

Once you have your account open and are ready to go the first step is to stop and take a deep breath. The impulse to make your first trade is great, however a hasty trade is often one ends up regretting. Do research. Pick your entry point and be patient.

Once you have identified your target stock, when do you buy it? There are many different theories seeking to answer this question. Many rely on technical analysis to identify the best price at which to buy a given stock. Technical analysis attempts to look at past performance to divine its next move. Many are skeptical of this approach.

Whether technical analysis works or not, there is phenomenon called self fulfilling prophecy. If others believe it works then their belief can translate to reality. For example, if a commonly watched technical indicator says to buy a given stock at $10, once it hits that level many people who believe in that analysis will seek to buy. This demand, whether rational or not, has the effect of driving up the price hence turning belief into reality.

Now that you have determined which stock to buy, and at what price, the next decision is when to sell it. Your exit for the stock can be in two different scenarios. This first is the lesser desirable one of having to sell at a loss. Whenever you buy a stock, decide in advance how much you are willing to lose. If the stock unhappily drops to that level your decision to sell has already been made and you won't act out of the emotions of the moment.

Conversely, you should also decide the price at which you'll sell the stock on the upside. This more enjoyable scenario entails knowing when to sell and take profits. Many times investors get carried away with the moment and hold a stock too long. This results in what is called a "round trip" whereby the holder watches it go up then all the way back down. One obviously wishes not to take this ride.

These are just some basic rules of smart stock investing. The amount of information available to help you be a better trader is endless. Read all you can and maintain your discipline so you too can be a smart trader.