Stock market trading tip

Hot tips on hot stocks. Are you always looking for a stock market trading tip? Do you regularly check stock quotes only to be surprised when you see that your free stock market trading tip did not work out the way you expected. Trading tips, advice and receiving investing information are a part of the trading game and you should know about them. Since you cannot get away from tips, at least know what to do when you receive one.

What to do when you get a Stock Market Trading Tip

Here is a typical scenario. You are new to trading and do not know what you are doing. A friend tells you they are making a lot of money in a certain stock. You buy it, the stock starts to drop, and you panic and sell at a loss. I did this when I first started out trading stocks. When this sounds like something you have done in the past, did you learn a lesson from this transaction?

The above scenario describes someone who bought a stock on a tip. Beginners and untrained traders generally do this because they think others know more than they do. Stock tips come from all sorts of places: TV, radio, newspapers, newsletters, Internet, magazines, friends, brokers, co-workers etc.

Why do people take tips on what stocks to buy? Here are some reasons:

1. Laziness
2. Think others are smarter than they are
3. Think others have better information
4. Want to join the crowd
5. Want to buy something but do not know what to buy
6. Don't want to be left behind
   

Trading stocks is typically a one on one game. You against the market. Some traders prefer to trade in a trading rooms in which a number of traders gather under one head person or company and trade a specific way. For instance as a group, they can point out which stocks are moving. As they are typically following the same basic systems this can work well.

Yet, consider when a longer term position trader joins a day trading group. This is likely not going to work out.

You are a unique the individual and as such, you will need to identify how you want to get into and out of the market, what type of money management will work for you, how much risk you want to take per trade and how many positions you want have open at a time. These are some of the areas that you need to sort out and you won't find them in a tip.

Why do people give out stock tips? Here are some reasons:

1. For some people talking about the stock market is a social pass time
2. They may want to brag about how well they are doing
3. They may want you to bid the price up so they can sell
4. They may think they are doing you a favour

What should you do if you get a stock tip? Here are some suggestions:

1. When the stock tip sounds interesting, check it out.
2. When appropriate, identify a good buying point
3. Identify where you would place your sell stop
4. Determine how many shares you should buy based on your risk tolerance

Typically, the person who provides the stock market tip will not be around when there is a change in regards to the price of the stock. What can happen is the following: a person receives a tip, acts on the tip and now has a position open and is unsure what to do with it. When they are long everything is great provided price keeps increasing. What happens when the price starts to decrease? Do they exit the position or continue to watch the price drop?

Let's look at a situation which I think may be relatively common. You are watching a TV interview on a business station and the guest for the day provides two or three stocks that they think are a good buy.

Why are you getting this information? Is there a motive for them to do it? Perhaps their thought is to sell it as they bought the stock quite a while ago and would like it to move up just a little bit more before they sell it. Alternately, they may truly believe this is a long-term opportunity to enter the stock at this moment. Unfortunately for you, there is no way to discern what their motive is.

Get informed before you act on a stock tip.

Chart courtesy of StockChart.com

The stock market will teach you many lessons every time you trade. Trading other peoples tips is generally one you should avoid. For instance, what opportunities do you think await a trader watching ATS.TO as shown above?

By looking at stock market charts and identifying areas which makes sense to you to get in and out of you will gradually learn how to trade profitably. One of these lessons you will need to learn is how to lose gracefully as losing is part of trading game.

Stock market trading tips have been around for a long time. For instance, in Edwin Lefevre's "Reminiscences of a Stock Operator", first published in 1923, Lefevre references people who would give a stock market trading tip in the hopes of improving their position.

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