Investing in the ASX Share Market? Don’t Invest Without This!

So you want to increase your wealth by investing in ASX Shares? You’ll want to read this: 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 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, 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 Buying and Selling – these are the rules you have tested that determine when you buy and when you sell a share. Whether it is buying for fundamental reasons, like company earnings or book price, or whether it is for technical reasons like crossing a trend line or Dow theory it doesn’t matter: so long as it suits you.

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.

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