The ASX Share market can be a great place to increase your wealth – provided you make the right moves from the start. By this I mean that there are a few fatal mistakes that can cost people their nest eggs, and see them leaving the market for good.

If you had invested $150 a month in the ASX share market starting in 1980, and earning an average of 15% per annum, today you would have $1,038,490 or over one million dollars. $38 a week. Not bad, eh?

But many people when first starting out make a few fatal mistakes – maybe they lose a little (or a lot) of money. And they stop investing. They get scared out of the market. And because of this they lose out on all the rest of the gains over the years – they lose out on that million dollars we just discovered.

So how can we make sure we don’t make the same mistake trading ASX shares? Your Trading Plan is the answer, and although it can be simple, it is the most powerful tool you will use in the market. If you haven’t got one, you shouldn’t be trading. But where do we start?

Well, there are many different ways to invest – in fact as many people as there are investing. But there are a few solid ground rules that will definitely help you out. Therefore, your trading plan should have the following:

1: Your Entry and Exit Rules – these are the solid rules you have outlined allowing you to buy and sell your shares. It could be based on fundamental reasons, like a company’s earnings before interest and tax (EBIT), or it could be based on technical reasons, like a Dow Theory entry signal. Whatever you decide, you should follow them diligently.

2: Your Money Management rules – these rules tell you how much you invest in a single share, and how many positions you invest in total. Here it is important not to risk too much in one share – if it tanks you will be in trouble. Usually the optimum is between 6 to 12 positions. This way you are diversified, but also not too diversified. Having too many positions can actually have a negative effect.

Having these in place will set you on your way to a solid start in ASX Shares.

Visit www.asxmarketwatch.com for more information on ASX Shares, including a free course and free market research on Australian Stocks.

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