Guide to Safe Stock Trading - 10 Principles Every Investor Must Know

Wanting to succeed in stock investing not only requires understanding theory but also having a clear strategy and disciplined execution. Many new investors often suffer losses due to lack of experience and not following basic principles. Here are 10 principles to help you trade stocks more safely and effectively.

1. Clearly define your investment style

Before starting, you need to decide: short-term or long-term investing?

Short-term investing applies day trading strategies, based on technical analysis to identify entry/exit points. This style requires continuous market monitoring, leverage use, and a high risk tolerance.

Long-term investing uses buy-and-hold strategies, selecting stocks based on fundamental analysis. This style requires less frequent monitoring but demands deep understanding of a specific industry or company.

Each style has different strategies. Once chosen, strictly adhere to that strategy to avoid wrong decisions driven by emotions.

2. Diversify your investment portfolio

This is a golden lesson emphasized by legendary investor Warren Buffett. When you invest in multiple stocks across various sectors, or even different asset classes (stocks, cryptocurrencies, forex), you reduce the risk of significant losses.

For example, stock indices like S&P 500 or VN30 are diversified portfolios across many stocks. During market downturns, these indices tend to decline less than holding a single stock. Warren Buffett advises long-term investors that index investing is a simple yet effective way to participate in the stock market.

3. Choose high-quality stocks

If you are a long-term investor, selecting the right stocks is key to success.

Signs of good stocks:

• Low debt, quick ratio (Current assets/Current liabilities) over 1.5
• Revenue and profit growth consistently over the past 5 years
• Profitability ratios (ROE, ROA, profit margin) increasing annually
• Regular dividends
• Reputable management with no history of breaking promises or hiding information

Leading companies like Vingroup, Vinamilk, Hòa Phát, Bình Minh Plastic not only grow strongly but also serve as good defensive assets during market downturns. Therefore, adding quality stocks to your portfolio is a smart strategy often recommended by experienced investors.

4. Adjust your portfolio according to market trends

The stock market constantly changes with economic needs. Even long-term investors should periodically review stock performance and adjust weights accordingly.

For example, during the COVID-19 pandemic, central banks loosened monetary policy and cut interest rates. This encouraged borrowing, boosting real estate demand and causing sector stock prices to surge. However, when real estate lending tightened in 2022, demand declined and stock prices reversed downward.

A successful investor knows how to flexibly adapt portfolio weights based on policies and future trends. Warren Buffett himself continuously adjusts stock weights in the Berkshire portfolio based on economic cycles.

5. Always control risks

For short-term investors, risk control is crucial. Use Stop Loss (stop selling) and Stop Buy (stop buying) orders to protect capital when the market suddenly reverses.

Risk control tools:

• Sell Stop (Sell Stop): Sell stocks when the price drops to a preset level
• Buy Stop (Buy Stop): Buy stocks when the price rises to a preset level

An effective strategy is to set stop-loss/stop-buy points 10-15% away from your open position. This way, if losses occur, you can manage risks within your tolerance.

6. Determine optimal buy/sell timing

Experienced investors use technical analysis—charts, patterns, indicators—to find the best trading moments.

Two common indicators:

• Relative Strength Index (RSI): Measures price volatility. RSI < 30 indicates oversold, RSI > 70 indicates overbought or nearing peak.
• Stochastic Indicator: Identifies reversal signals. Above 80 suggests overbought (potential decline), below 20 suggests oversold (potential rise).

Mastering these indicators helps you trade more safely by relying on data rather than emotions.

7. Skillful “bottom fishing” stocks

Bottom fishing maximizes profits but is very risky. Use only a small portion of capital for this attempt.

Signals indicating a bottom:

• Price forms a new low but momentum indicators (RSI, Stochastic) are rising—selling pressure wanes
• Price starts forming higher lows—selling pressure decreases
• Large trading volume during decline—investors are bottom fishing

However, do not invest all your capital in this risky game. And absolutely avoid bottom fishing in penny stocks or stocks trading below par value, as they tend to fall sharply.

8. Do not borrow money to invest

This is the most important lesson. Only invest with money you can afford to lose without affecting your personal finances. Borrowing to invest is very dangerous, especially in Vietnam where many “black companies” charge up to 1000% interest per month.

If using margin to amplify returns, be cautious. With a 1:20 margin, $100 you can control $2,000 worth of assets. In the worst case, you only lose your entire capital $100 without incurring debt.

9. Practice continuously

From Warren Buffett’s experience, the biggest lesson is never to lose money. To do this, you must constantly learn, analyze stocks, and practice trading.

The most effective way is to participate in real trading to accumulate experience gradually. Start with small positions; knowledge from books must be tested in real market conditions.

10. Maintain psychological stability and discipline

Markets are highly volatile; a large profit position can turn into a loss in just 1-2 days. Keep a steady mindset, analyze the reasons behind market swings to make accurate decisions on holding or cutting losses.

Don’t let fear dominate. Cutting losses hastily may lead to regret later. A successful investor knows when to wait and when to act.

In summary, safe stock trading requires patience, discipline, and mental stability. By following these 10 principles, you will build a solid foundation for a long-term investment journey.