A Beginner's Guide to the Stock Market

Put in a limit order to buy the stock at that price.

Never buy a stock based on an analyst upgrade, or sell a stock based on an analyst downgrade.

A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two.

The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business.

Don’t force a trade. Be patient, and wait for the fat pitch. If you can learn patience and discipline, the market will eventually reward you beyond your wildest dreams.

"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

Focus on a few stocks, and get to know how they trade. Don’t spread yourself too thin by trying to follow too many stocks.

"Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I'm getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis."

In addition, penny stocks are inherently more volatile than higher-priced stocks. Think of it this way: if a $100 stock moves $1, that is a 1% move. If a $5 stock moves $1, that is a 20% move. Many new traders underestimate the kind of emotional and financial damage that this kind of volatility can cause.