Master the stock market - 10 golden rules every investor must know

Are you new to trading and looking for effective ways to play stocks? Merely studying theory is not enough — to succeed in the market, you need to accumulate practical experience, stay continuously updated on market fluctuations, and learn from the lessons of seasoned investors. Through stock trading, I have distilled 10 golden principles that anyone aiming for successful stock trading must master.

1. Define an investment path that suits yourself

Before starting, think carefully: will you be a short-term or long-term investor?

The stock market has two main routes. The first is short-term trading — traders in this category apply buy-sell strategies within the same day, mainly relying on technical analysis to find optimal entry and exit points. The second is long-term holding — investors base their decisions on fundamental analysis of companies to select stocks worth holding for a year or even decades.

Each path has its own strategy. If you choose short-term trading, you need to learn about after-hours trading strategies, in-depth technical analysis, or derivatives tools. If you opt for long-term investing, you must learn how to read financial statements, understand the company’s development strategy, and apply dollar-cost averaging.

Once you’ve determined your direction, strictly adhere to that strategy. This will help you avoid mistakes caused by emotional fluctuations.

Comparison of the two investment styles:

2. Don’t have overly high expectations from a single stock

One of the most common mistakes for beginners is putting all eggs in one basket. Experienced investors, including Warren Buffett, emphasize the importance of diversification.

Why? Because when risks emerge — such as a global crisis, corporate scandal, or policy change — holding only one stock can lead to rapid loss of assets. But if your portfolio includes many stocks from different sectors, losses are spread out and more manageable.

Diversification doesn’t have to be complicated. You can buy indices like S&P 500 or VN30, which are baskets of pre-selected stocks. Or diversify across asset classes — not just stocks but also cryptocurrencies, forex, or commodities.

During tough times, these indices tend to decline less than holding a single stock. Warren Buffett has advised long-term investors that investing in index funds is the simplest yet most effective approach. Although in hot markets, index investing might not outperform individual stocks, over the long run, the return rates generally surpass bonds or savings.

3. Stock selection skills are the foundation of success

If you choose the long-term investment route, a company’s financial health is crucial. How do you know if a stock is truly worth holding?

Start by reading financial reports, understanding the company’s development strategy, and assessing the potential of their products. A “good” stock typically has these characteristics:

First, the company has manageable debt levels. The liquidity ratio — Current Assets / Short-term Debt — should be above 1.5 to ensure safety. Second, revenue and profits have grown steadily over the past five years — excluding periods affected by events like the pandemic. Third, profitability indicators such as Profit Margin, ROE, ROA should show annual growth. Fourth, the company pays regular dividends to share profits with shareholders. Lastly, leadership must have credibility, never promising false outcomes or hiding bad news.

By the way, great companies like Vicostone, Vingroup, Vinamilk, Hòa Phát, or Bình Minh Plastic — which have seen significant value increases over the past decade — share a common trait: they are major players with large market shares and continuously acclaimed leadership teams.

High-quality stocks often do not deliver spectacular profits during market booms but are invaluable defensive assets when the market turns downward. Therefore, adding one or two solid stocks to your portfolio for long-term holding is a smart move, often recommended by experienced investors.

4. Flexibly adjust your portfolio according to market rhythm

The world changes daily; people’s needs evolve, and the stock market also shifts accordingly. Even if you’re a long-term investor spanning years, you should periodically review your portfolio’s performance and adjust allocations to fit new trends.

Recall what happened when COVID-19 broke out. To support the economy, the State Bank loosened monetary policy, lowered interest rates, making borrowing easier and cheaper. Many borrowed money to buy real estate, boosting housing demand, and real estate stocks surged.

But everything changed at the end of 2021 when the State Bank began restricting property loans. Housing demand decreased, expectations for real estate companies’ revenues weakened, and stock prices started to plummet. An intelligent investor would recognize these signals and reduce real estate stock holdings immediately.

Warren Buffett is a perfect example. Though famous for long-term holding, if you follow Berkshire Hathaway’s portfolio, you’ll see the proportions of stocks fluctuate continuously in each reporting period. This proves that successful investing isn’t about holding forever but knowing when to hold and when to cut back to adapt to market conditions.

5. Control risks — the number one factor for survival

Especially for short-term traders — where risks lurk at every corner — the best way to protect your assets is by using risk management tools.

The first tool is Sell Stop — which automatically sells your stock when the price drops to a preset level. The second is Buy Stop — helping you buy automatically at a specified price. There’s also Stop Limit — a more complex order that allows you to limit losses while calculating your desired entry point.

An effective strategy is to set stop-loss levels from 10% to 15% below your entry price. This ensures that at worst, you lose only a small amount, while at best, you maintain the chance for substantial profits.

6. Identify entry and exit points: Technology meets experience

Experienced investors never buy or sell arbitrarily. They use technical analysis — charts, patterns, indicators — to find golden moments.

The two most popular indicators are RSI (Relative Strength Index) and Stochastic. RSI measures price volatility. When RSI drops below 30, the stock is under heavy selling — a potential buy signal. When RSI exceeds 70, the stock may be near peak — a sell signal.

Stochastic measures trend strength. Above 80 indicates overbought conditions, signaling a possible reversal. Below 20 suggests oversold status, with prices likely to rebound.

If these indicators seem too complex, you can start by observing simpler trading signals or using support tools based on these indicators.

7. Catching the bottom — a game for the daring

Bottom fishing can generate extraordinary profits but is also one of the riskiest tactics. How to know you’re truly catching a bottom and not “catching falling knives”?

First sign: Prices form new lows, but momentum indicators like RSI and Stochastic are rising. This shows selling pressure is weakening, and prices are near bottom to turn around.

Second sign: Subsequent lows are higher than previous lows. Selling pressure has diminished, and prices are ready for recovery.

Third sign: Unexpected high trading volume appears. This indicates strong investors are bottom-fishing, absorbing at current prices, and prices are poised to rise again.

However, remember: catching falling knives is extremely dangerous. Only use a small portion of your capital to test, and never gamble on penny stocks or highly speculative names — these tend to fall sharply when they drop.

8. Do not borrow money to “play big”

A classic mistake many beginners make is borrowing money to invest, or borrowing from shadowy financial firms with exorbitant interest rates — sometimes up to 1000% per month.

Golden rule: Only invest with surplus funds — money you can afford to lose without affecting your current life. Borrowing is essentially putting yourself in the fire.

Now, there’s a safer way to amplify profits: using margin. Margin allows you to borrow money from the trading platform to buy more, with safety protections. For example, trading Alibaba on a reputable platform with 1:20 leverage. With $100, you can buy stocks worth $2,000. In the worst case, you only lose your initial $100 — no debt afterward. If lucky, just a 1% increase in Alibaba’s price boosts your profit by 20%.

9. Practice is the golden key

Warren Buffett has a secret few know: he always avoids losing money in investing. How? By continuously learning, analyzing, and practicing.

To master effective stock trading, you must go through stages: from theory to actual trading practice. The best way to start is by opening a demo account at a trading platform, where you can trade with fake money without real risk. Practice, learn from mistakes, refine your strategy, and keep practicing.

Each trade is a lesson. Each loss is an opportunity to understand yourself and the market better. Accumulate gradually — no one becomes successful overnight.

10. Psychology is everything

Finally, and most importantly: Maintain stable psychology.

The stock market fluctuates like waves. Today you’re at the peak, tomorrow could be a crash. Therefore, you should not let emotional fluctuations dictate your decisions. When prices fall, don’t panic and cut losses immediately. Stop, analyze the situation, and make decisions based on logic, not emotions.

Emotional decisions often lead to regret. You might regret selling too early before a rally, or holding too long and watching profits evaporate.

Stay mentally strong, disciplined, and you’ll outlast most other investors.

Learning to trade stocks isn’t a quick game. It requires patience, discipline, and humility to learn. But if you master these 10 principles, you have a solid foundation. The long-term investment journey awaits you.