Whether you want to trade stock for the long term or use it as a way to supplement your income, it’s important to set a plan before jumping in. You may also have specific goals in mind, such as generating income or building wealth. This article will help you figure out how much time and money you’ll dedicate to trading stocks and how to manage your risk.

Before making a trade, you should define and write down your entry and exit criteria. This could be a specific price point or the end of a certain trading day. You should also decide if you’ll use leverage, which increases your gains but can also intensify your losses. More info theinvestorscentre.com

For example, if you’re buying a stock to hold for the long haul, your entry criteria might be to buy when it breaks through an overhead trendline or the upper boundary of a consolidation pattern on a chart. Or it might be to sell if it closes below your estimate of its intrinsic value. Your exit criteria should be specific enough to test and repeat, so you can stick with it in volatile markets.

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You should also decide how much of your portfolio you’ll invest in individual stocks. Moore recommends not investing more than 10% to 15% of your income in any one stock, and preferably less than that. This can help you avoid getting sucked into a “pump-and-dump” scheme, in which shady traders purchase buckets of shares of a small, thinly traded company and hype them up on online forums to drive up the price.