What’s the difference between investing and gambling? Gambling relies on chance alone while investing demands that you follow the stock market rules and make every decision after careful planning.

Warren Buffet, for example, always insisted on two simple stock rules:

  • Rule 1: Never lose money.
  • Rule 2: Don’t forget rule 1.

Of course, there’s more to it than that. Whether you’re a seasoned investor or are just starting to wade into the stock market, the following 14 stock trading rules can help you invest more wisely and find more enjoyment in the process.


1. Define Your Goals

Start by defining your goals. Sure, you want to make money, but are you investing to save for your future, such as for retirement, or are you hoping to invest in a trendy startup or make stacks of cash from day trading?

Defining your goal early on is one of the most basic stock trading rules. Knowing your goal will ensure that you know how to measure future success.

2. Think Long-Term

Long-term investments are more favorable than jumping around through day trading or other short-term investments. For example, Forbes reports that the stock market returned 9.9% annually to investors between 2002 and 2017. Those who hopped in and out of the market did not get the benefit of these returns.

This trend also means that periods of market volatility shouldn’t mean the end of your investment. Instead, a diverse portfolio can weather temporary setbacks and generate long-term revenue.

We’re not trying to disparage the strategies employed by day traders, but buy-and-hold stocks tend to offer less risk and better returns for the average investor.

3. Set a Budget

How much money are you prepared to invest in the market? One of the most important stock market rules is to set a budget before you start investing. This way, you’ll know how much money you have to work with and can distribute your investments accordingly.

Make sure to discuss this decision with your spouse or family so that everyone is on the same page regarding the financial plan.

4. Research, Research, Research

Every investment you make should be the result of a lot of homework. Read as much as you can about a company’s recent financial performance. Learn more about industry trends that could affect the company you’re interested in.

This work is where stock research tools can be helpful. The right tools can help you examine a stock’s past performance and forecast how the company might perform in the future.

5. Don’t Go “All In” All at Once

Don’t blow your cash on a single opportunity, no matter how good it sounds. After all, the market can change at any given moment. Your best bet is to make an initial investment budget, but keep money in reserve to take advantage of unexpected opportunities.

6. Diversify

Diversification is one of the most basic stock rules. Proper diversification means that your stock portfolio contains investments from many different companies in many different industries. This setup is for your protection. If a particular market sector dips, your entire portfolio won’t be affected.

Many mutual funds and exchange-traded funds are designed with diversity in mind, so purchasing one of these funds can be a fast track to diversification.

7. Use the Right Trade Orders

There’s more than one way to buy stock. For example, you can use the following orders to make strategic stock trades:

  • Limit Order: Set the maximum price you’re willing to pay for a given stock
  • Stop Order: Automatically sell a stock if it drops below a predetermined price

These are just some of the basic trade order types that can help you avoid exceeding your budget for a particular stock or losing too much if a stock price unexpectedly plummets.


8. Make Small, Regular Investments

Investing isn’t just a one-and-done practice. Instead, you’ll want to make small, regular investments as you build your portfolio. This reality also means that your investment budget should reflect a regular commitment to maintaining your investment portfolio.

Some investors like to practice the dollar-cost averaging technique when they purchase shares of stock from a particular company. Rather than buy all of these shares in a one-time purchase, they buy small “batches” of shares over time until they reach their desired exposure.

This approach averages against short-term fluctuations causing you to miss out on a better price or overpay when the price is too high.

9. Minimize Transaction Costs

You’ll purchase stocks through a brokerage firm, and these firms charge for their services. In fact, most brokers will charge a small fee for every trade you make. To maximize your investments, you’ll want to cut back on the fees you pay, which means avoiding lots of small transactions.

For day traders and other active investors, this might mean shopping around for a brokerage firm with low fees that match your active trading strategy.

10. Find the Right Fund

While it’s perfectly acceptable to purchase individual stocks, many investors would do well to consider purchasing shares in an investment fund. This advice can be especially helpful for new investors, allowing them to quickly build a solid, diverse portfolio.

Common fund types include:

  • Mutual funds
  • Exchange-traded funds (ETFs)
  • Index funds

Index funds are often an overlooked gem in the investment community. Rather than try to beat the market, these funds simply try to match the performance of a market index, such as the S&P 500.

Some research even indicates that 90% of active fund managers fail to meet the performance of their benchmark index, which means that you have a greater chance of return on your investment when choosing an index fund.

11. Don’t Listen to Rumors

The internet is full of rumors about prospective investments. One of the best stock market rules is to ignore these rumors. Rumors, after all, can be true or false. Even if a large number of people seem to be following these rumors, don’t give in to the herd mentality.

Instead, focus on the fundamentals of trading. If a rumor sounds plausible, do your due diligence by investigating the company and determining whether it could be a worthwhile investment opportunity.

12. React Based on Research, Not Emotion

Many investors make “gut decisions” only to regret them later. For example, you might purchase a promising new startup out of fear of missing out on a golden opportunity. Alternatively, you might jettison a buy-and-hold stock because the company is experiencing a temporary dip in stock price.

In other words, keep your emotions in check when you’re investing. Every decision you make should reflect your research, not your emotions. This reality is another great reason to set long-term goals, which are less dependent on the short-term behavior of a particular asset.

13. Keep Track of Every Investment

This advice is one of the most important stock rules of all. Once you make an investment, keep track of how it performs. The market can be highly volatile. Your portfolio can rise and fall considerably depending on how the market performs or even how a particular industry performs.

Unpredictability is baked into the equation, regardless of whether you buy a risky startup or a buy-and-hold stock. With the right monitoring tools, you can make crucial decisions about when to buy and sell stocks or how to rebalance your portfolio for better long-term gains.


14. Find the Right Tools

The right tools can make all the difference for today’s investors. That’s why Gorilla Trades members get access to the latest information and resources to make the most of their investments. See for yourself by signing up for a free trial. You’ll receive 30 days of free stock alerts, so you can discover how to refine your investing strategy.