Stock Market Trading Fundamental Principles

Economic recession has cast its glooming shadow on the season of festivities. However, investment options available in the capital markets should not be blamed for the losses incurred by investors. More often than not, retail investors fail to segregate low risk investment options from lucrative options that are more prone to risks.



Wise investors regard the following as a fundamental rule of stock market trading-invest only in stocks of organizations you know inside out. You need to understand the business as if you run it. It may sound ironical but it's actually your money that runs the company.


If you think about all the losses suffered by the retail investors, it will clearly show the majority of their losses took place when they plunged into unknown areas like stock options trading because they were not prepared with a solid designing option trading strategy.



If your investments are under water because you barged ahead without an appropriate option trading strategy, the best thing for you to do right now is step back and reevaluate your plan. To panic and cash out of all your investments would be the worst thing you could do as it would turn a paper loss into a real capital loss.



One fundamental principle of stock market trading is that stocks will hit a bottom. Over time, they will hit an all time low at a particular price level, but eventually appreciate again in value. However, fundamental factors like financial fraud or manipulative accounting can break this principle. When a company goes under, the stock may never recover its share price.



After a stock has taken a big hit it may take a long time for it to get back to where it was, but it is better to wait for the long climb back then it is to wait for years only to get back less than you put in. If your stocks are already way down due to profit taking by foreign or institutional investors, then it is already too late for you to time the market and join them.


It is a general practice, when stock market trading, to invest in well established businesses who are leaders in their industries. These stocks have a history of faster recovery when the stock market falls than companies who are not segment leaders.