Stock Trading Guide from Basic to Advanced - 10 Principles Investors Must Follow

Want to participate in the stock market but don’t know where to start? The difference between consistently profitable investors and those who keep losing is not luck, but knowledge and discipline. To develop trading skills, traders need not only to study theory but also to continuously update themselves on market trends and learn from the experiences of predecessors. This article summarizes 10 essential principles that anyone aiming for success in stock trading must master.

1. Clearly define your approach - Short-term or long-term

First, you must identify a trading style that suits you. The stock market has two main paths:

Short-term style: Applying buy-sell strategies within the day, based on technical analysis to determine entry and exit points. This type of stock trading requires you to monitor prices constantly and master signals from charts.

Long-term style: Using buy-and-hold strategies, selecting stocks based on fundamental analysis of companies. You don’t need to monitor frequently, just check periodically.

Each style requires different knowledge. For short-term investing, you need to understand technical analysis, news trading, and derivatives strategies. For long-term investing, you should be able to read financial reports, understand basic business indicators, and know how to select promising sectors.

Comparison table of the two styles:

2. Diversify risk with a varied portfolio

This is a lesson from Warren Buffett - one of the greatest investors. Instead of putting all eggs in one basket, diversify your capital across many stocks, different sectors, or even different asset classes like stocks, cryptocurrencies, and forex.

When you hold indices like S&P 500 or VN30 - which include dozens of different stocks - you’ll notice lower volatility compared to holding a single stock. During bear markets, these indices tend to decline less than heavily affected individual stocks.

Buffett advises long-term investors that investing in indices is a simple yet effective way to build wealth. Although in bull markets, indices may not rise as sharply as individual stocks, their annual returns are still much higher than savings accounts or bonds.

3. Choose quality stocks - The key to long-term investing

If following a long-term buy-and-hold stock guide, selecting the right stocks is crucial. You need to carefully read financial reports, understand the company’s development strategy, and evaluate the growth potential of its products/services.

Signs of a quality stock:

◆ Strong financials: The company has low debt, short-term liquidity ratio (Current assets / Short-term liabilities) above 1.5 is safe.

◆ Stable growth: Revenue and profit tend to increase over the past 5 years (excluding global risks like COVID-19).

◆ Profitability performance: Indicators like profit margin, ROE, ROA improve year by year.

◆ Regular dividends: The company has a tradition of paying dividends consistently.

◆ Reputable management: The company’s leadership has no history of deception, hiding information, or breaking promises to investors.

Observing leading Vietnamese companies over the past 10 years such as Vicostone, Vingroup, Vinamilk, Hòa Phát, Bình Minh Plastic - all share common traits: large scale, significant market share, and management recognized by employees. These companies may not always offer the highest yields during hot markets, but they are often good defensive assets when the market turns downward.

4. Rebalance your portfolio according to market changes

Even if you’re a long-term investor on an annual basis, you still need to periodically review the performance of your positions and adjust weights to align with new market trends.

For example, when COVID-19 broke out, central banks worldwide loosened monetary policy and cut interest rates. This made borrowing cheaper, leading to a surge in real estate demand and strong real estate stock prices. However, in 2022, to curb inflation, credit tightening policies for real estate were implemented. At that time, housing demand decreased, projected profits of real estate companies declined, and stocks reversed downward.

A true investor knows how to adapt their positions flexibly. Even Warren Buffett, famous for buy-and-hold investing, continuously adjusts Berkshire Hathaway’s portfolio weights quarterly. The secret to effective stock trading is not just holding long-term but holding with appropriate weights based on market conditions.

5. Risk control is vital

Regardless of your trading style, risk management is always a top priority. Important tools include:

◆ Sell Stop orders (Sell Stop): Automatically sell stocks when the price drops to a set level. If you buy at 100, you can set a sell stop at 90 to limit losses.

◆ Buy Stop orders (Buy Stop): Automatically buy stocks when the price reaches a predetermined level.

An effective strategy is to set stop points about 10-15% away from your entry price. This allows you to manage risk reasonably—if you incur a loss, it remains within your tolerance.

6. Determine entry and exit points using technical analysis

Experienced investors use technical analysis (charts, patterns, indicators, market psychology) to find optimal trading moments.

Two most common indicators:

◆ Relative Strength Index (RSI): Measures price volatility. If RSI < 30, stocks are oversold. If RSI > 70, stocks are near overbought.

◆ Stochastic Indicator: Identifies reversal signals. If indicator > 80, stocks are overbought and likely to reverse downward. If < 20, stocks are oversold and may rebound.

If you’re just starting out, you can begin with these basic signals and gradually develop your own analysis skills.

7. Catching the bottom - High-risk opportunity

Successfully catching the bottom can yield extraordinary profits, but it is extremely risky. To identify a true bottom:

◆ The price forms new lower lows, but momentum indicators (RSI, Stochastic) increase - signs that selling pressure is weakening.

◆ The price begins forming higher lows compared to previous lows - indicating selling pressure has decreased.

◆ Large trading volume appears during the decline - a sign that investors are trying to catch the bottom.

If you want to try catching the bottom, only use a small portion of your capital that you can afford to lose. Never risk all your assets in this game. Also, avoid catching the bottom of speculative stocks or companies that have fallen below par value - these tend to fall even deeper.

8. Do not use borrowed money for investing

This is a common mistake. Only invest with idle cash—money that, if lost, won’t affect your life. Borrowing to invest is very dangerous, especially from unofficial channels with exorbitant interest rates.

However, if you trade on reputable platforms, you can use margin (margin trading) to increase your purchasing power. For example, with a 1:20 margin on Alibaba stocks, you can buy stocks worth $2,000. In the worst case, you only lose your initial capital and owe nothing. In the best case, a 1% increase in Alibaba’s price yields a 20% profit.

9. Continuous practice - The key to progress

Warren Buffett states that the golden rule in investing is: never lose money. To achieve this, you must constantly learn, analyze stocks, and practice trading. Theoretical knowledge is just the first step—real market experience teaches you real lessons.

The best way to accumulate experience is to start with small trades or use demo accounts if available, to practice analysis and risk management without risking real money. Step by step, you’ll master both theory and practical market skills.

10. Maintain psychological stability and discipline

The final but equally important point: psychology. The stock market is highly volatile—today’s big profit position can turn into a heavy loss tomorrow. Experienced investors know how to stay calm and analyze the true causes of fluctuations before deciding to cut losses or hold positions.

Don’t let emotions influence your decisions. Fear or greed can lead to impulsive actions you’ll regret later. Stick to your trading plan and only adjust based on rational analysis, not emotions.

Effective stock trading guidance doesn’t happen overnight. It requires patience, discipline, mental stability, and continuous learning. Start with these fundamental principles, keep practicing, and gradually build your own path to success in stock investing.