Investing in the ASX Share Market – Don’t Trade Without This

The ASX Share market can be a great place to increase your wealth – provided you make the right moves from the start. By this I mean that there are a few fatal mistakes that can cost people their nest eggs, and see them leaving the market for good.

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 statistics show that over 82% of traders lose a large portion of their capital and never trade again. If you are investing for the long term, your odds are slightly better (although 2008 scared a lot of investors out as well). But the thing is – now they miss out of the rest of those gains, on that million dollars that we discovered.

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 Entry and Exit Rules – these are the solid rules you have outlined allowing you to buy and sell your shares. It could be based on fundamental reasons, like a company’s earnings before interest and tax (EBIT), or it could be based on technical reasons, like a Dow Theory entry signal. Whatever you decide, you should follow them diligently.

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.

Having these in place will set you on your way to a solid start in ASX Shares.

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.