Stock Trading Guide for Beginners - 9 Principles You Must Master

Want to succeed in stock investing? These are the key principles that every investor must understand. Besides studying theory, traders need to continuously update market news and learn from experienced investors. This article will summarize 9 golden rules to help you improve your stock investment performance.

1. Choose a strategy that matches your goals

First, you need to clearly identify which school you belong to:

Short-term investing - applying day trading strategies, based on technical analysis to find buy and sell points. This approach requires constant market monitoring, high risk tolerance, and knowledge of chart reading and technical signals.

Long-term investing - buy-and-hold strategy, selecting stocks based on fundamental analysis and financial reports. You don’t need to watch the market daily, with lower risk, but require deep knowledge of industries and companies.

Once you’ve chosen a strategy, stick to it strictly to avoid bad decisions driven by psychology.

Comparison of the two methods:

2. Diversify your portfolio - protect your assets

This is the secret advice from all experienced investors. Warren Buffett himself adheres to this principle. Diversification helps minimize major losses when risks materialize.

You can diversify by:

• Buying multiple stocks from different sectors
• Investing in stock indices (S&P 500, VN30,…)
• Combining various asset classes: stocks, cryptocurrencies, forex

Stock indices are already diversified portfolios. During bear markets, these indices decline less than holding a single stock. In bull markets, index investments may not rise as sharply as individual stocks, but in the long run, returns are still much higher than savings or bonds.

3. Skills in selecting good stocks

If you follow a long-term investment approach, choosing the right stocks is a decisive factor. You need:

• To read the company’s financial reports
• Understand its development strategy
• Assess market potential for its products

Characteristics of good stocks:

◆ Low debt, short-term liquidity ratio (current assets/current liabilities) above 1.5

◆ Revenue and profit growth consistently over 5 years (excluding major economic crises)

◆ Profitability indicators (profit margin, ROE, ROA) increasing annually

◆ Regular dividend payments

◆ Trustworthy management team, no history of violations or hiding information

Good management plays a crucial role. Major Vietnamese companies like Vicostone, Vingroup, Vinamilk, Hòa Phát have seen strong growth over the past decade, thanks to recognized leadership.

Good stocks may not surge in hot markets but serve as defensive assets during downturns. This is a winning strategy that experienced investors always recommend to beginners.

4. Adjust your portfolio according to market trends

Markets are constantly changing, so even long-term investors should periodically review performance and adjust weights.

For example: When COVID-19 broke out, the State Bank loosened monetary policy, lowering interest rates. Borrowing became easier, real estate demand increased, pushing up stock prices in that sector. However, in early 2022, as tightening policies were implemented, housing demand declined, and real estate stocks reversed downward.

Smart investors adapt to new policies and trends. Warren Buffett is famous for holding long-term but his Berkshire portfolio changes continuously from report to report.

5. Risk management - a vital factor

Especially for short-term trading, controlling risk is key to survival and growth.

Use orders to protect assets:

◆ Sell Stop order: Sell stocks when the price hits a preset level, helping you exit losing positions.

◆ Buy Stop order: Buy stocks at a specified price to participate in upward trends.

Effective tip: Set buy/sell stop points at 10% to 15% of the opening position price. This helps control risk—losses are within your tolerance.

6. Precisely identify entry and exit points

Experienced investors use technical analysis to find optimal entry and exit points.

Two most common indicators:

◆ RSI (Relative Strength Index): Measures price volatility. RSI < 30 = oversold, RSI > 70 = approaching peak.

◆ Stochastic Indicator: Measures trend strength. Above 80 = overbought, about to reverse downward; below 20 = oversold, about to rebound.

If you’re not proficient, start with basic trading signals based on these two indicators.

7. Techniques for bottom fishing stocks

Successfully catching the bottom maximizes profits but is very risky. Only allocate a small portion of your capital for this strategy.

Signs of a bottom:

◆ Price repeatedly hits new lows, but RSI and Stochastic indicators rise — indicating selling pressure is weakening

◆ Price forms higher lows over time — selling pressure has diminished

◆ Large trading volume during declines — investors are bottom fishing

Note: Avoid bottom fishing in penny stocks or stocks trading below par value, as these can fall sharply.

8. Control greed - avoid borrowing to invest

Only invest with money you can afford to lose without long-term impact. Never borrow money for trading, as the risk of significant losses is high.

If you want to amplify profits, you can use controlled margin (leverage). For example: with 1:20 leverage on Alibaba stocks, you only need (to control a position of $2,000. In the worst case, you lose only your initial capital and are not in debt. If the price increases by 1%, you earn 20%.

9. Continuous learning and maintaining psychological stability

To never lose money in investing, you must constantly learn, analyze, and practice. Demo trading accounts are excellent tools to hone analysis skills without risking real capital.

Markets are volatile; a large profit position can turn into a loss in 1-2 days. Stay calm, analyze the causes behind fluctuations, and make accurate decisions to hold or cut losses. Don’t let fear or panic drive you to sell prematurely — you may regret it later.

Conclusion

Learning to trade stocks requires patience, discipline, and mental stability. Applying these principles will help you build a solid foundation for a successful long-term stock investment journey.