Want to succeed in the stock market? 10 principles every investor must understand

Many beginners with stock investment experience tend to rely more on luck than strategy. But to achieve stable profits, you need to understand the fundamental rules of the market. Here are 10 principles that every investor should know to increase their chances of success.

First Step: Define Your Trading Style

Not everyone is suited to the same way of playing stocks. There are two main schools:

Short-term trading based on intraday transactions, using technical analysis to catch small fluctuations. This requires you to constantly monitor the price charts, master strategies such as trading based on economic news, chart pattern analysis, and sometimes using derivatives. This type offers high returns but also comes with high risk.

Long-term investing involves holding stocks for many years, based on fundamental analysis of the company. You need to read financial reports, business strategies, and assess growth potential. This approach is less adventurous but requires deep industry knowledge.

Each style has different requirements regarding risk tolerance, market monitoring frequency, and leverage usage. Clearly defining your style from the start will help you choose appropriate strategies and avoid wrong buy/sell decisions influenced by psychology.

Risk Control - The Key to Long-term Survival

This is a costly lesson that every investor must learn. Even with a good strategy, if you don’t manage risk, you can lose everything.

Use basic stop-loss orders to protect your assets:

• Sell Stop (Sell Stop): Automatically sell when the price drops to a preset level, helping you cut losses promptly.
• Buy Stop (Buy Stop): Automatically buy when the price surpasses a resistance level, avoiding FOMO (@E5@fear of missing out).

Golden rule: Set stop-loss points at 10-15% from the opening price. This ensures that if you make a mistake, the loss remains within your tolerance.

Remember: Never use borrowed money for investing. Only invest with money you can afford to lose without affecting your life. Margin or leverage tools can increase profits but also magnify losses. Think carefully.

Diversification: Warren Buffett’s Secret

This is a simple but powerful truth. Never put all your money into one stock or one industry.

Diversification can be:

• Buying multiple stocks from different sectors
• Combining stocks, cryptocurrencies, forex, commodities
• Investing in indices (such as S&P 500, VN30) instead of individual stocks

Benefits: When a bear market hits, a diversified portfolio will decline less than holding a single stock. In a bull market, index investing may not rise as sharply as a good stock, but the return rate is still much higher than bonds or savings.

Warren Buffett advises long-term investors that index investing is a simple yet very effective way to earn stable profits.

How to Choose Good Stocks for Long-term Holding

If you follow the long-term school, selecting the right stocks is crucial.

Characteristics of a good stock:

• Low debt ratio, with the Current Assets / Short-term Debt (Tài sản ngắn hạn / Nợ ngắn hạn) over 1.5 is safe
• Revenue and profit grow steadily over the past 5 years (excluding major crises like COVID-19)
• Profitability indicators (Profit margin, ROE, ROA) increase annually
• The company pays regular dividends to shareholders
• Leadership with a good reputation, never caught deceiving or hiding important information

In reality, leading companies like Vicostone, Vingroup, Vinamilk, Hòa Phát share common traits: large market share, respected leadership, and strong appreciation over the past 10 years.

Note: Good stocks often do not give the highest profits during hot markets, but they serve as a good shield when the market turns down.

Technical Analysis to Time Buy/Sell Points

To find the optimal entry or exit points, use the two most popular technical indicators:

RSI (Relative Strength Index): Measures stock volatility

• RSI below 30: Stock is being heavily sold, potential buying opportunity
• RSI above 70: Stock is nearing a peak, caution needed to sell

Stochastic Indicator: Identifies reversal points

• Above 80: Overbought, about to reverse downward
• Below 20: Oversold, about to rebound

Experienced investors combine these two indicators with market sentiment analysis to make decisions.

Art of Bottom Fishing

Catching the bottom correctly can bring extraordinary profits. But it’s also one of the riskiest tactics.

Signs that a bottom is near:

• Price continuously makes new lows, but RSI and Stochastic indicators are rising – indicating weakening downward momentum
• Price starts forming higher lows compared to previous lows – selling pressure is decreasing
• Trading volume spikes during the decline – investors are returning to catch the bottom

Warning: Catching falling knives is very dangerous. Only allocate a small portion of your capital to this game. Never risk all your assets. Avoid bottom fishing in speculative stocks or those priced below par, as they can collapse completely.

Adjust Your Portfolio According to Market Trends

A long-term investor must also be flexible. Over time, needs and policies change, and so does the market.

For example: When COVID-19 broke out, central banks loosened monetary policy, lowering interest rates. People borrowed easily at low rates, rushing to buy houses. Real estate stocks surged. But in early 2022, policies changed – banks restricted real estate loans. Housing demand dropped, real estate companies’ profits declined, and stocks turned downward.

Lesson: Regularly review your portfolio performance, adjust the weightings of stocks to align with new policies and trends. Warren Buffett is famous as a long-term investor, but if you observe Berkshire’s holdings, you’ll see the allocations change constantly. Effective stock investment is not just about holding long, but holding with the right proportions at the right time.

Continuous Learning and Practice

Warren Buffett says: “The secret to never losing money is to keep learning.”

• Analyze stocks in detail
• Practice trading to master theory and practice
• Participate in demo trading to accumulate real experience
• Learn from your mistakes

The best way to start is with a demo account, using virtual capital, to practice without risking real money. This helps you build skills and confidence before investing actual funds.

Psychology Is Everything

The stock market is highly volatile. A position with big gains can turn into a loss in just 1-2 days. Many skilled analysts fail because of unstable psychology.

To maintain mental stability:

• Don’t rush to cut losses out of fear without proper analysis
• Don’t be overly greedy during hot markets
• Follow your trading plan, don’t let emotions dominate

Remember: The market will test you enough. But if you are patient, disciplined, and keep a steady mindset, you will overcome.

Summary

Successful stock investment experience is not about luck, but the result of clear strategies, tight risk management, and strong psychology. From defining your trading style, diversifying your portfolio, to continuous learning and adjusting to trends – all are building blocks for long-term success.

The investment journey is a marathon, not a sprint. Start with basic principles, build discipline, and step by step, move toward your goals.