Stock Trading Guide - 10 Essential Principles Every Investor Must Master

Starting a stock trading journey without clear guidance is risky. To succeed in this investment field, you need to master not only theory but also practical experience from those who came before. Here are 10 core principles of stock trading guidance that every investor should know to enhance their investment performance.

1. Define your investment direction from the beginning

Before entering the market, you must decide what style to pursue. There are two main paths:

Short-term investing: Applying day trading strategies, relying on technical analysis to identify buy and sell points. This method requires continuous monitoring, knowledge of technical analysis, market indices, and a high risk tolerance.

Long-term investing: Choosing good stocks and holding them based on fundamental analysis. This approach does not require constant screen watching, only understanding of a specific industry or company.

Each approach has different knowledge requirements, risk levels, and trading frequency. Choose a style that fits your ability, free time, and risk tolerance, then stick to that strategy disciplinedly to avoid impulsive buy/sell decisions driven by emotions.

2. Diversification - The secret to minimizing losses

This is a principle Warren Buffett always recommends. Don’t put all your eggs in one basket. Instead, spread your investment capital across many stocks, various industries, and even different asset classes such as stocks, cryptocurrencies, and forex…

The benefit of diversification is that when one sector faces difficulties, others can compensate. Broad stock indices like (S&P 500, VN30…) are typical examples of diversified portfolios. During bear markets, these indices tend to decline less than holding a single stock. In the long run, this investment approach yields higher returns than savings or bonds.

3. Skills in selecting quality stocks

If choosing the long-term investment route, finding good stocks to hold is extremely important. You need to carefully read the company’s financial reports, understand development strategies, and assess the potential of their products in the future.

Signs of potential stocks:

• Solid financial position: liquidity ratio (Current Assets/Short-term Debt) over 1.5
• Stable revenue and profit growth over the past 5 years
• Increasing profitability indicators (Profit Margin, ROE, ROA)
• Regular dividend payments
• Reputable management without deception or concealment of information

Top Vietnamese companies with the strongest stock growth over a decade like Vicostone, Vingroup, Vinamilk, Hòa Phát, Bình Minh Plastic… all have excellent leadership and clear strategies. Good stocks may not provide “hot” profits during market surges but serve as solid assets when the market turns.

4. Adjust your portfolio according to market rhythm

Over time, social needs change and the market fluctuates. Even long-term investors need to periodically review portfolio performance and adjust weights accordingly.

For example, during the pandemic, monetary easing and interest rate cuts stimulated real estate demand, causing stocks in this sector to soar. But when the government tightened real estate lending to curb housing prices in early 2022, demand declined, and stocks in this field reversed downward. Experienced investors know how to flexibly adjust weights to adapt to these changes.

Even Warren Buffett, famous for long-term holding strategies, continuously adjusts Berkshire’s portfolio according to each reporting period. Real experience is knowing how to hold with the right weight at each time, not just holding forever.

5. Risk management - A key factor in trading

If you pursue short-term trading, risk control is vital. Use stop-loss (Stop Loss, Buy Stop, Stop Limit) orders to protect your capital from excessive losses.

Main risk management tools:

• Sell Stop (Sell Stop): Automatically sell stocks when reaching a predetermined price, limiting losses
• Buy Stop (Buy Stop): Automatically buy at a set price

An effective tactic is to set stop points 10-15% away from the opening price. This helps control losses within tolerable limits.

6. Determine optimal buy/sell timing

Experienced investors use technical analysis (charts, patterns, indicators) to find ideal buy and sell moments.

Two most common indicators:

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

Stochastic Oscillator (Stochastic): Helps identify reversal signals. If > 80, stocks are overbought (about to decline). If < 20, stocks are oversold (about to rise).

Applying these indicators requires practice. This is a skill that cannot be mastered by theory alone.

7. Bottom-fishing strategy

Catching the bottom of stocks helps maximize profits. To identify the bottom, watch for these signs:

• Price continuously makes new lows but momentum indicators (RSI, Stochastic) rise — signs of weakening selling pressure, price about to rebound
• Price starts forming higher lows — selling pressure has decreased, positive signal
• Large trading volume appears during declines — investors are returning to bottom-fish

However, catching falling knives is very risky. Use only a small portion of capital for this strategy, never risk all assets. Also, avoid bottom-fishing in penny stocks or those already below par value, as they tend to fall sharply.

8. Do not borrow to invest - Important advice

Only invest with money you can afford to lose. Never borrow money to invest, especially with high-interest loans from “black” platforms when following stock trading guidance.

Money should come from idle cash or accumulated savings. If you want to increase profitability, you can use margin (borrowed capital from the trading platform), but be cautious. For example, with 1:20 leverage, $100 can control a position worth $2,000. In the worst case, you only lose the initial $100 and are not in debt. But in favorable cases, a 1% price increase yields 20% profit.

9. Continuous practice - The key to success

Warren Buffett’s experience: never lose money in stock investing. To do this, you must constantly learn, analyze stocks, and practice trading to connect theory with market reality.

The most effective way is to start with trial trading to accumulate experience. Learn from small mistakes with limited capital, rather than making big errors under pressure. Every trade is a valuable lesson on your stock trading journey.

10. Maintain psychological stability - Make correct decisions

The stock market is highly volatile. A position with big gains can turn into losses in 1-2 days. Therefore, you must keep a steady mindset, analyze the reasons behind fluctuations to decide whether to hold or cut losses wisely.

Don’t panic or fear and rush to cut losses. You might regret this emotional action later. Every experienced investor has gone through tough times, but those who can control their emotions will recover.