So you want to increase your wealth by investing in ASX Shares? Start out on the right foot and you could eventually supplement the income from your job. But make one of a few fatal mistakes and you could see yourself right out of the market, never to trade again.
What do I mean? Let me give you an example: Let's say you started putting $150 a month into ASX Shares in 1980. That's around $5 a day. It earns an average of 15% per annum over the years including dividends. If you re-invested all your returns, today it would be worth over one million dollars - $1,038,490 to be exact.
But many people when first starting out make a few fatal mistakes - maybe they lose a little (or a lot) of money. And they stop investing. They get scared out of the market. And because of this they lose out on all the rest of the gains over the years - they lose out on that million dollars we just discovered.
So how can we make sure we don't make the same mistake trading ASX shares? Your Trading Plan is the answer, and although it can be simple, it is the most powerful tool you will use in the market. If you haven't got one, you shouldn't be trading. But where do we start?
Well, if you take 100 different people, you will probably get 100 different trading plans. We are all individuals, and we all have different thresholds for risk. Therefore a good place to start with a trading plan is the following:
1: Your Rules for Entry and Exit - or in other words, your rules for when you buy a share and when you sell a share. There are many different ways: some people use fundamental reasons like a company's earnings before interest and tax (EBIT), and others use technical reasons, like a breakout from price consolidation or the crossing of a trend line.
2: Your Money Management rules - these rules tell you how much you invest in a single share, and how many positions you invest in total. Here it is important not to risk too much in one share - if it tanks you will be in trouble. Usually the optimum is between 6 to 12 positions. This way you are diversified, but also not too diversified. Having too many positions can actually have a negative effect.
While some people can spend years determining the right trading plan - it doesn't need to be complicated. With these rules you are well on your way to success in ASX shares. - 31876
What do I mean? Let me give you an example: Let's say you started putting $150 a month into ASX Shares in 1980. That's around $5 a day. It earns an average of 15% per annum over the years including dividends. If you re-invested all your returns, today it would be worth over one million dollars - $1,038,490 to be exact.
But many people when first starting out make a few fatal mistakes - maybe they lose a little (or a lot) of money. And they stop investing. They get scared out of the market. And because of this they lose out on all the rest of the gains over the years - they lose out on that million dollars we just discovered.
So how can we make sure we don't make the same mistake trading ASX shares? Your Trading Plan is the answer, and although it can be simple, it is the most powerful tool you will use in the market. If you haven't got one, you shouldn't be trading. But where do we start?
Well, if you take 100 different people, you will probably get 100 different trading plans. We are all individuals, and we all have different thresholds for risk. Therefore a good place to start with a trading plan is the following:
1: Your Rules for Entry and Exit - or in other words, your rules for when you buy a share and when you sell a share. There are many different ways: some people use fundamental reasons like a company's earnings before interest and tax (EBIT), and others use technical reasons, like a breakout from price consolidation or the crossing of a trend line.
2: Your Money Management rules - these rules tell you how much you invest in a single share, and how many positions you invest in total. Here it is important not to risk too much in one share - if it tanks you will be in trouble. Usually the optimum is between 6 to 12 positions. This way you are diversified, but also not too diversified. Having too many positions can actually have a negative effect.
While some people can spend years determining the right trading plan - it doesn't need to be complicated. With these rules you are well on your way to success in ASX shares. - 31876
About the Author:
Learn more about investing in ASX Shares with the free course at www.asxmarketwatch.com . Dave McLachlan also has free research on the Australian Stock Market.
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