Posted by forex at 4:56 AM
Read our previous post
1. Research all potential speculative investments thoroughly. Having a thorough understanding of the equity you are investing in is the only way to get a good grip on the nature of events likely to move a stock up and down --- and how to trade around these events.
2. Invest no more than one-tenth, preferably one-twentieth, of your total capital in a single speculative trade. You will inevitably have some losing trades when you are speculating, so you don't want to risk too much in one trade. Stocks tend to move too far up or down on big news, and taking advantage of this volatility in timing trades is a typical strategy used by speculators.
3. Monitor the news flow around all of your positions very carefully. Either set actual stops on each of your positions in your brokerage account, or keep mental stops and execute them when reached so you will get out of losing trades with minimum losses. Remember, a good many successful speculators have as many as or even more losing trades than winning trades, but most of their wins are significantly larger than their losses.
4. Try to maximize profits on winning trades. Don't automatically sell a position because it is up 35 or 40 percent; many stocks will run 50, 75 or even 100 percent on news. Wait until there is a reason to sell. However, do take profits when you anticipate poor news flow or adverse general market conditions. Do not hesitate to close a profitable trade if holding it has become more risky for any reason, or if you strongly feel that it is overbought after a big run and ripe for a technical correction.