From Market Practice: 10 Essential Lessons for Stock Investors

Wanting to succeed in the stock investment field requires more than just mastering theory. Professional traders understand that the key lies in combining book knowledge with real-world experience. From monitoring daily market movements to learning from pioneering investors, many valuable lessons await your discovery. Below are 10 lessons about stock trading experience that anyone entering the market should understand.

Step 1: Clearly Define Your Own Direction

The stock market is not a one-way street. There are two main trends that investors can choose:

Long-term investment based on the “buy and hold” strategy, requiring thorough analysis of financial reports and the company’s growth potential. With this approach, you will need a long observation period and do not need to constantly monitor price charts.

Short-term trading applies day trading strategies, mainly based on technical analysis and market psychology. This approach demands continuous updates on news, chart tracking, and executing multiple trades.

Each investment direction requires different skill sets, risk tolerance levels, and management schedules. Therefore, from the start, think carefully to choose a path that suits your personal conditions—financial, time, and stress tolerance.

Step 2: Never Put All Eggs in One Basket

Diversifying your portfolio is a principle emphasized by top-tier investors worldwide—like Warren Buffett. When you allocate capital across various stocks, different industries, or even different asset classes (stocks, cryptocurrencies, foreign currencies), you create a “protective shield.”

For example, when one industry faces difficulties, others may still grow. Broad market indices like S&P 500 or VN30 exemplify this—they include dozens or hundreds of stocks, so when the market adjusts, these indices decline less than holding a single stock.

In reality, investing in broad indices over the long term yields higher returns than savings accounts or bonds, even if not as exciting as selecting extraordinary stocks.

Step 3: The Art of Choosing the Right Stocks

If you follow the long-term investment approach, selecting quality stocks is crucial. To identify good stocks, you need:

Carefully read financial reports, understand the company’s development strategy, and evaluate the potential of its products/services in the future. Signs of a quality stock include:

• Low debt levels, short-term liquidity ratios above 1.5(
• Revenue and profit continuously increasing over the past 5 years )excluding global crises(
• Performance indicators like profit margins, ROE, ROA improving steadily
• The company regularly pays dividends to shareholders
• Leadership with credibility, never involved in controversial behaviors

Companies like Vicostone, Vingroup, Vinamilk, Hòa Phát, or Bình Minh Plastic are examples with impressive appreciation histories over the past 10 years thanks to solid business quality and strong leadership. Although they may not create “price shocks” during bullish markets, these stocks serve as valuable “defensive assets” when the market turns downward.

Step 4: Adapt to Market Changes

Long-term investing does not mean “buy and forget.” Over time, social needs change, economic policies adjust, and once prosperous industries may decline.

Take the COVID-19 pandemic as an example: when the outbreak occurred, central banks loosened monetary policy, lowering interest rates to stimulate consumption. Borrowing became easier and cheaper, leading to a surge in housing demand and pushing real estate stock prices higher. But then, when housing prices overheated, the government tightened real estate lending policies in early 2022. Immediately, demand decreased, projected profits of real estate companies fell, and stock prices in this sector started to decline.

A truly wise investor is not someone who holds a “dead” portfolio but someone who knows how to flexibly adjust weights to fit new trends. This explains why Berkshire Hathaway’s portfolio constantly changes in each report, despite Warren Buffett’s reputation as a long-term investor.

Step 5: Risk Control Is the Top Priority

Especially for short-term traders, risk management is not optional but mandatory. The most effective tools include:

Sell Stop Orders: You set a price level; when the stock drops to that level, the system automatically sells to exit the position. This prevents large losses when the market reverses.

Buy Stop Orders: Similarly, used when you want to buy at a certain price, usually when the price breaks through resistance.

A golden rule: place stop points about 10-15% away from your entry price. This way, if losses occur, they remain within your tolerance and do not financially devastate you over time.

Step 6: Entry and Exit Timing: The Domain of Experts

Experienced traders use technical analysis to find “golden moments” to buy or sell. The two most widely used indicators are:

Relative Strength Index )RSI(: If RSI is below 30, the stock is oversold )potential buying opportunity(. If RSI is above 70, the price is overbought and likely to correct.

Stochastic Indicator: Measures trend strength. Above 80 indicates “overbought” )warning of upcoming correction(. Below 20 indicates “oversold” )recovery opportunity(.

Of course, using these indicators requires knowledge. But once proficient, you will not be confused about when to act.

Step 7: Catching the Bottom - Opportunity or Trap?

Buying stocks at the lowest point )buy at the lowest price( can generate billion-dollar profits but also risk falling into dangerous “knife catch” traps.

To recognize genuine market bottoms:

• Prices form new lows but momentum indicators )RSI, Stochastic( rise: indicating selling pressure is weakening
• New “shallow” lows compared to previous ones: signs that selling pressure has eased
• Trading volume spikes during declines: investors are returning to catch the bottom

However, note: only risk a small portion of your capital to test catching the bottom, never risk all assets. Also, avoid catching the bottom of speculative stocks or those trading below par value, as these can fall freely when prices drop.

Step 8: Do Not Borrow Money to Play

A classic mistake is using borrowed money for investments. In Vietnam, this risk is heightened by many niche companies offering loans with exorbitant interest rates )up to 1000% per month(.

The safest rule: only invest money you are willing to lose without affecting your life. That is, idle savings, not borrowed funds.

If you want to amplify returns, a safer option is to use margin )leverage( provided by legitimate trading platforms. With margin, you only risk your initial capital in the worst case, without incurring debt afterward. For example, with 1:20 leverage, you can control a position 20 times your capital. A 1% increase in price yields a 20% profit.

Step 9: Continuous Practice Is the Path to Success

Warren Buffett says: you should not lose money when investing. To achieve this, you need:

Constant learning, analyzing stocks, and practicing trading. No one is born a master. The most effective way is to participate in real trading, gradually accumulating experience and market intuition.

During learning, don’t hesitate to experiment with small amounts first. You can also find platforms offering demo accounts )without real money( to practice strategies without financial risk.

Step 10: Psychology - The Final Deciding Factor

The stock market is a “battlefield of emotions.” A position that is highly profitable can turn into a loss in 1-2 days. At that moment, fear and panic will dominate you.

Experienced investors know: maintain psychological stability, analyze the true causes behind volatility, then decide whether to hold or cut losses. If you act on emotions—selling in panic or holding stubbornly out of hope—you will definitely regret it.

The accumulated experience in stock trading comes from many phases: rising markets, falling markets, unexpected shocks. Throughout these, the only things that keep you steady are discipline, patience, and mental stability. Your long-term investment journey will be full of valuable lessons—treat each trade as an opportunity to grow.