Steps to Stock Trading: The Psychological Foundation and Strategies of Successful Investors

Want to step into the world of stock trading without paying expensive tuition fees? This question is posed by millions of new investors every year. The truth is, the steps to trading stocks are not just about technical skills or theory, but mostly about psychology, discipline, and flexible adaptation to the market. This article will decode the key factors that help you build a solid foundation for your long-term investment journey.

Part 1: Building Psychological and Planning Foundations

First Step: Define Your Personal Investment Philosophy

Before you start any transaction, you need to answer a basic question: are you a short-term or long-term investor?

This difference creates a clear divide in approach:

For investors seeking quick profits (short-term), the goal is to capture intraday price movements, using technical analysis to identify optimal entry/exit points. They need to constantly monitor price charts, update market news hourly, and be ready to execute dozens of trades per week. This method requires high risk tolerance and deep knowledge of technical indicators like RSI, Stochastic, or reversal patterns.

For long-term investors, the strategy is entirely different. They spend time researching financial reports, analyzing industry potential, and building a portfolio by holding quality stocks for several years to decades. This approach requires less daily monitoring but demands a deep understanding of business operations.

Clearly defining your approach helps you know what to learn, which skills to practice, and how to manage capital. It also minimizes wrong decisions caused by psychology or lack of direction.

Second Step: Stable Mindset - The Decisive Factor for Success

Most new investors start with big ambitions but end up with heavy losses for a single reason: they cannot control their psychology.

The stock market is a place where emotions are amplified. A position with a 50% profit can turn into a 30% loss in just a few days, and then fear drives you to cut losses too early. Conversely, during a hot market, FOMO (fear of missing out) will make you buy at the peak, only to see prices drop afterward.

The secret to overcoming these phases is:

• Have a clear trading plan before entering a trade
• Strictly adhere to stop-loss orders (stop loss), regardless of emotions
• Never trade when your mind is not clear

Warren Buffett, one of the greatest investors in the world, has a golden rule: “Never lose money when investing.” This does not mean never incur losses, but rather avoiding mistakes that can destroy your entire portfolio.

Part 2: Building a Sustainable Investment Strategy

Third Step: Diversification - Your Shield

A common mistake among new investors is putting all their money into one or two stocks. When these stocks fall, the entire portfolio also declines.

Diversifying your portfolio is the first principle that any experienced investor follows. This can include:

• Buying many stocks from different industries (technology, finance, consumer goods, energy)
• Investing in stock indices (S&P 500, VN30) instead of individual stocks
• Combining stocks, bonds, and other asset classes

The benefit of this approach is that when one sector or stock faces difficulties, other parts of the portfolio can still grow, reducing the impact of losses.

Fourth Step: Choosing High-Quality Stocks

If you pursue a long-term investment strategy, selecting good stocks is crucial. High-quality stocks often have the following characteristics:

Strong financials: The company has low debt ratios, stable liquidity (Current assets/Short-term debt minimum 1.5), and consistent positive cash flow.

Sustainable growth: Revenue and profit have increased steadily over the past 5 years, excluding periods of economic crises.

High profitability: Indicators like profit margins, ROE (Return on Equity), ROA (Return on Assets) grow year over year.

Good corporate governance: Leadership is reputable, rarely makes promises broken, and does not conceal information or deceive shareholders.

Looking at Vietnamese companies with the strongest stock gains over the past 10 years like Vicostone, Vingroup, Vinamilk, Hòa Phát, Bình Minh Plastic—all are major names with stable market share and widely recognized leadership. This is no coincidence.

An interesting fact is that good stocks do not always yield high returns during market booms, but they are excellent defensive assets when the market crashes. They help preserve your capital during turbulent times.

Fifth Step: Adjust Portfolio According to Market Cycles

The world is constantly changing, and the stock market reacts quickly to these changes. Even long-term investors need to periodically review portfolio performance and make necessary adjustments.

Take COVID-19 as an example: When the pandemic broke out, central banks worldwide, including Vietnam, loosened monetary policy, lowering interest rates to stimulate consumption. Borrowing became cheaper, leading to a surge in housing demand, and real estate stocks soared.

However, from early 2022, as inflation rose, banks began tightening monetary policy and restricting real estate loans. Housing demand immediately declined, and real estate stock prices plummeted. Investors with sharp insight reduced their real estate holdings early, while late responders suffered heavy losses.

Warren Buffett is famous for long-term holding, but if you follow Berkshire’s portfolio, you’ll see stock proportions change constantly. That’s the secret: hold steadily but adjust flexibly.

Part 3: Practical Skills and Risk Management

Sixth Step: Determine Entry/Exit Points with Technical Analysis

To maximize profits, you need to know when to buy and when to sell. Technical analysis provides tools for this.

RSI (Relative Strength Index) measures overbought/oversold levels. When RSI is below 30, the stock is heavily sold off and may be a buying opportunity. When RSI is above 70, the stock is overbought and may reverse downward.

Stochastic indicator helps identify turning points. When this indicator is above 80, the market is overheated and likely to reverse. When below 20, the market is oversold and has high recovery potential.

Besides these indicators, you can use candlestick patterns (candlestick patterns) like Double Bottom, Head and Shoulders, or trendlines to identify turning points.

Seventh Step: Catching the Bottom - Opportunities and Risks

Catching the bottom—buying when prices are at their lowest—can generate extraordinary returns. But it is also one of the most dangerous strategies if not executed properly.

To recognize that a stock is bottoming out, look for these signs:

• Price continuously makes new lows (lower lows), but momentum indicators (RSI, Stochastic) start to rise. This indicates selling pressure is weakening.
• After a series of lows, the stock begins to form higher lows. This signals investors are starting to return.
• Trading volume spikes during the decline. This shows investors are actively trying to buy the dip.

However, remember: not every “bottom” is truly the bottom. Some stocks will continue to fall further. Therefore, only allocate a small portion of your capital to catch the dip, and use stop-loss orders to protect yourself. Never risk your entire assets on this risky game of catching the bottom.

Eighth Step: Risk Management - The Key to Survival

Risk management is not optional; it is mandatory. Tools to protect your assets include:

Stop-loss orders (Stop Loss): Set a minimum price at which you are willing to accept losses. If the price drops to this level, the order automatically sells your entire position.

Stop buy orders (Stop Buy): Set a price at which you want to enter if the stock rises to that level.

An effective strategy is to place a stop-loss 10-15% below your entry price. This helps control risk: if everything goes wrong, your losses remain manageable.

Ninth Step: Do Not Borrow Money to Invest

The biggest mistake most new investors make is using borrowed money or excessive leverage.

In Vietnam, many apps and “trap” companies offer loans with interest rates up to 1000% per month. That’s a path to financial ruin.

Golden rule: only invest with idle cash, savings that, if lost, do not affect your long-term life. You can use margin (margin trading) reasonably to amplify profits, but keep it within safe limits and always have a clear stop-loss plan.

Tenth Step: Continuous Practice

Like any skill, stock trading requires ongoing practice. The difference between experienced investors and beginners is that they have learned from thousands of trades.

The best way to start is practicing with a demo account (demo account), where you can trade with virtual money without risk. This allows you to:

• Test your strategies in real market conditions
• Learn to read charts and recognize patterns
• Accumulate experience without real money loss

Once confident, start with small amounts and gradually increase as your skills improve.

Conclusion

The steps to successful stock trading are not a short or easy journey. It requires patience, discipline, continuous learning, and most importantly, the ability to keep calm during volatile market times.

Remember: the goal is not to make a lot of money overnight, but to build a solid portfolio that can generate financial independence for you in the long run. With a clear plan, iron discipline, and perseverance, anyone can become a successful investor.