What You Need To Know About Investing in ASX Shares
Investing or trading in the share market can be a great way to increase your wealth, and if you play your cards right eventually supplement the income from your job. But there are a few fatal mistakes that may stop you from enjoying success on the ASX Share Market.
Say you took $150 a month, and starting in 1980 invested in the ASX share market. You earn an average of 15% per annum, and today that $150 a month is worth $1,038,490. Over a million dollars using just $5 a day.
But not everyone makes it that far. In fact, a great deal of people investing in ASX shares lose a portion of their money, get scared out of the market and never invest again. And the sad part is they never discover that million dollars we just spoke about because after all, you’ve got to be in it to win it.
So here is the important part – what you need to know when trading ASX shares. It is often the most overlooked part of trading or investing: It’s your Trading Plan. In fact, don’t trade shares without one. But finding a trading plan can be a daunting task. Where do you start?
Well, there are many different ways to invest – in fact as many people as there are investing. But there are a few solid ground rules that will definitely help you out. Therefore, your trading plan should have 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 – this is where you decide how much of your portfolio you will invest in one share. And also how many positions you will spread your portfolio across. As a guide, between 6 and 12 positions is usually optimum. Any less than 6 and you risk not being diversified enough. Any more than 12 and you risk being unable to out-perform the market (the best portfolios are often slightly focused).
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.
Visit www.asxmarketwatch.com for more information on ASX Shares, including a free course and free market research on Australian Stocks.
