So you decided to try trading on the stock market yourself, but haven't a clue of where to begin. The first step is to determine your investor personality.

1. The laissez-faire investor doesn't want the hassle of babysitting their stocks and is more interested in long-term potential than short-term gains. You should focus on quality companies that have consistent earnings and high dividends, and diversify across several sectors making occasional trades based on general market and economic conditions. You will have to weather down days and see your investment decline some, but overall you should see a slow and steady appreciation of your portfolio. The extreme market conditions of late offer an excellent opportunity to build your positions.

2. The active investor stays informed and keeps regular tabs on their stock positions. You are not particularly interested in dividends unless convenient, and will make several trades each month. You trade before the news, selling the rallies and buying the dips instead of chasing down the market movers of the day. You're willing to put your money at moderate risk for moderate gain and have the guts to ride out the fluctuations. The extreme market conditions are not kind to you right now, so tread carefully.

3. The day trader is glued to the screen, buying and selling several times per day. You are too nervous to let money sit in a given stock overnight and will usually end the day back in cash, unless you have reasonable assurance that tomorrow's action will work to your advantage. You chase down the news and bottom-feed on crashes, playing high stakes for the hope of significant gains. You may have days where you make 50-80% on a single position, but lose it all the next day betting the wrong way. Definitely not for the faint of heart. You need to operate on strict trading parameters to protect yourself in any market, not just this schizophrenic one.

In each case, you need to take emotion out of your trading decisions - and this is harder than it sounds. While the market itself operates on sentiment and can be moody, you need to set Rules of Engagement and trade on discipline over gut instinct. You might miss big moves this way, but your risk is reduced. Either way, until you understand how you handle this stress, make sure the money you are investing is a sum you can afford to lose. As your confidence and experience increases, you can add to your cash investment.

Coming soon...

Rules of Engagement
How to Trade 101

by Claire Rahn

* Please note that Stocks and Blondes posts are purely for informational purposes only and should not be used as a substitute for professional financial advice.