Here are some things to be aware of and think about when starting out buying shares:
1: Never commit all your money to one or two stocks, however much you think it's gonna be a big winner!
2: Think about a spread of "risk".At most ,a third of your total "risk capital" spread across 3 different sectors- Techs/Utils/Retail/Consumer/etc. better still 1/10 across 3 or 4 sectors.This will minimise losses if one sector does badly...Look at it like this- if you spread 1/10, you COULD lose all your money in that stock, yet only lose 10% of your total capital.
Remember, without capital , you can't trade!
3: For longer term investing, it is essential to research the companies you are thinking of investing in.
4: For any type of investing, use TA to enter and close your positions.Try and buy close to "support". NEVER EVER buy at "resistance". Sell at resistance if you can.
Allways remember to decide BEFORE you buy a stock, what your allowable/acceptable loss will be and STICK TO IT.Your losses will kill you, not your profits.
5:Never hold on in hope- it inevitably ends in misery and massive losses.
6: Pick stocks that are frequently traded,with high volume, and small spreads- the difference between buying and selling. Aim for less than 2% spread (20p in £10.00):
Here's why! Let's buy £1000 worth of shares:
Consider 2 stocks that are equally attractive:
Stock 1 has a buy price of 100p and a spread of 5p
Stock 2 has a buy price of 1000p and a spread of 20p
So for stock 1 we get 1000 shares.
Add 0.5% duty (£5)
Add buying costs (£15.00)
Add selling costs (£15.00)
ADD SPREAD!!!! (£50.00)
TOTAL cost = £1085 so each share costs 1.085
For stock 2, all the figures are the same except spread cost which is £20.00. So stock 2 share cost is £1.055
Spot the bargain? I hope so. To make a profit on share one, the price has to rise by 8.5% JUST TO BREAK EVEN!For share 2, the price has only to rise by 5.5%. Thereafter you will be in profit!
These differences become smaller the more you buy, BUT you should ALLWAYS know what your break even % rise is.
Remember also, that for stock one, a 10% drop in price before you sell, will result in an overall LOSS of 18.5%
THATS A BIG LOSS!!!!!
Whatever your target rise in % terms, DONT forget to add in the % costs first.So if you want 10% profit from stock one, the price has to go up to 18.5% , to end up with 10%.
Hope you learnt something from this.
[Edited by Sharky on 07-02-2001 at 11:46 PM]
1: Never commit all your money to one or two stocks, however much you think it's gonna be a big winner!
2: Think about a spread of "risk".At most ,a third of your total "risk capital" spread across 3 different sectors- Techs/Utils/Retail/Consumer/etc. better still 1/10 across 3 or 4 sectors.This will minimise losses if one sector does badly...Look at it like this- if you spread 1/10, you COULD lose all your money in that stock, yet only lose 10% of your total capital.
Remember, without capital , you can't trade!
3: For longer term investing, it is essential to research the companies you are thinking of investing in.
4: For any type of investing, use TA to enter and close your positions.Try and buy close to "support". NEVER EVER buy at "resistance". Sell at resistance if you can.
Allways remember to decide BEFORE you buy a stock, what your allowable/acceptable loss will be and STICK TO IT.Your losses will kill you, not your profits.
5:Never hold on in hope- it inevitably ends in misery and massive losses.
6: Pick stocks that are frequently traded,with high volume, and small spreads- the difference between buying and selling. Aim for less than 2% spread (20p in £10.00):
Here's why! Let's buy £1000 worth of shares:
Consider 2 stocks that are equally attractive:
Stock 1 has a buy price of 100p and a spread of 5p
Stock 2 has a buy price of 1000p and a spread of 20p
So for stock 1 we get 1000 shares.
Add 0.5% duty (£5)
Add buying costs (£15.00)
Add selling costs (£15.00)
ADD SPREAD!!!! (£50.00)
TOTAL cost = £1085 so each share costs 1.085
For stock 2, all the figures are the same except spread cost which is £20.00. So stock 2 share cost is £1.055
Spot the bargain? I hope so. To make a profit on share one, the price has to rise by 8.5% JUST TO BREAK EVEN!For share 2, the price has only to rise by 5.5%. Thereafter you will be in profit!
These differences become smaller the more you buy, BUT you should ALLWAYS know what your break even % rise is.
Remember also, that for stock one, a 10% drop in price before you sell, will result in an overall LOSS of 18.5%
THATS A BIG LOSS!!!!!
Whatever your target rise in % terms, DONT forget to add in the % costs first.So if you want 10% profit from stock one, the price has to go up to 18.5% , to end up with 10%.
Hope you learnt something from this.
[Edited by Sharky on 07-02-2001 at 11:46 PM]
