Tips For Successful Stock Market Trading
Investing money entails a great amount of risk. Like they always say, “It takes money, to make money.” Money doesn’t grow on trees, you know.
But it doesn’t necessarily mean that to achieve good profits, one has to invest heavily and risk greatly. That is not the case all the time. A well-informed investor can make sound decisions that will help him earn considerable profits with minimal loss.
The first lesson a successful businessman will tell you is that any endeavor carries potential risk along with potential gain. The trick is to determine if the profit is worth the risk. If it is, it is now time to consider if you are willing to take the risk.
Before you start trading the stock market, ask yourself this:
- What are your achievement goals for trading the stock market?
- Are your investments going to lose money in the stock market?
- Are you willing to take bigger risks for better profits in stock market?
Setting your achievement goals will allow you to know how long you’re willing to wait for a stock to gain profit. It will also give you a limit on how much you’re willing to lose. It will also give you an idea on how to go about investing in a stock.
If you choose a low-return investment, it will mean that either you increase the amount you invest or increase the length of time invested.
After you have made up your mind with the above questions, there are some tips you may want to use to evaluate your trading philosophy.
- When to invest. Ordinarily, you want to trade all the time. You get excited when you see shares go up or when they fall down. You make decisions based on a whim and factors that don’t usually affect a stock in the long run. The best traders wait 50% of the time waiting and studying how a stock performs. They do not trade every day and all the time.
- Discipline yourself. You are so excited to make trades that you trade on a stock that looks half-decent enough rather than waiting for the best stock to come along.
- Small moves big payoffs. Don’t waste time dabbling in so many small stocks with minimal profit. Watch out for big stocks and concentrate on a few.
- Do not be too emotional. Making money is exciting. Losing money can get very depressing. Detach yourself from your emotions; otherwise, you won’t be able to look at things objectively.
Trading stocks is a high-risk, high-profit venture. Dabbling in the stock market half-cocked is suicide. Take your time. Study, research and be patient. After all, it’s your money, so it’s your loss.
Stock Market Trading Strategies
There are several trading strategies used by investors in buying and selling in the stock market. These strategies are used by investors to check out the stocks to buy and the time to sell them.
These strategies count up to more than a hundred ways, all tried and tested, all effective, and have been so for many years. Experts advise beginners to investigate some more of these basic trading strategies.
Hedging is a way of protecting an investment through the reduction of the risks involved in holding a particular stock. One way is buying a put option.
This allows the selling of the stock at a particular price within a certain time period. In turn, this offsets the risk of a decrease in the stock prices. (There will be a value increase of the put option as soon as the stock price falls.)
Selling financial futures like the S&P 500 is another way of hedging against market declines. However, the most expensive hedging strategy is to buy put options against individual stocks.
Investors with big portfolios is better off if they buy a put option on the stock market itself for the reason that it protects them from general market declines.
Dogs of the Dow
This strategy (popular in the 90s) entail the buying of the best-value stocks in the Dow Industrial Average. These are the ten stocks with the lowest P/E ratios but with the highest dividend yields.
This tactic hinges on the idea that these ten lowest companies have the most potential for growth. The Dow Index have their listed companies as those which have a reliable investment performance.
Pigs of the Dow
This is a 180-degree variation of the Dogs of the Dow strategy. In Pigs of the Dow, five of the worst-performing stocks on the Dow are selected, based on their price decline percentage from previous years.
The twist lies in the assumption that these Pigs of the Dow, the worst-performing five stocks, are going to rebound more than the others will.
Buying on Margin
Buying on margin is buying stocks using money from a broker. Because of more stocks received despite the low investment, the investor is given more by margin buying rather than by full payments.
In the event the stock loses value, the losses in margin buying is correspondingly bigger. In order to limit these, investors have stop-loss orders when buying on margin. This is usually about 10% of the total account value.
Dollar Cost Averaging
This is investing fixed dollar amounts on a regular basis. (Example: monthly buys of shares from a mutual fund.)
A price drop will cause the investors to receive more shares for their money. Conversely, a raise in the price will cause fewer shares bought.
Value averaging is the alternative to dollar cost averaging. This involves a decision to have investments set to a regular value.
If the price of the fund increases, the investors will put in higher dollar amounts to match the increase. If the fund price decreases, they will spend less money. Their investment will average out to the actual cost of the fund.
To date, value averaging performs better than dollar cost averaging strategy most of the time. When used in tandem with the other stock market strategies, value averaging can actually help in securing investment fund growth.
The Pros And Cons Of The Stock Market?
Understanding the nature of the stock market, including its pros and cons, doesn't have to be confusing one. Many people fear that in order for them to know the nature of the stock market, they have to understand a gamut of stock and marketing terms and all that jazz.
On the other hand, some people saw behind the veneer of all these economic gibberish, and saw the potentials of what they could get from investing in the stock market.
In a Nutshell
Simply put, the stock market is the market to buy and sell stocks and shares. This is where company stock gets traded. The term is also used to describe the totality of all stocks in one country. That is why we hear reporters talking that "the stock market was up today" or that "the stock market went down after the dollar fell to the euro."
What are the Pros and Cons of the Stock Market?
One of the reasons why we need the stock market is because it is an important factor for the US economic system to operate. Through the stock market, US companies improve their financial viability and expand their operations by raising funds from selling stocks. Without the stock market, our companies become slower in their growth and might falter in the increasing competition in the US as well as against international companies.
Another reason for the existence of the stock market is that it also has role in personal financial planning. This is because many individuals buy stock shares as part of their personal financial strategies. More importantly, most Americans have a stake in the stock market because retirement programs invest in stocks. It has shown that retirement programs earn a lot more by investing in common stocks than other options such as saving the funds in banks.
Of course, the stock market also has its downsides. Remember that the stock market is not a tool for instant success. True, there are cases of one getting wealthy by investing in the market, but this involves having shares in various company stocks, which means a lot of research, time, and money. One also gets rich when some stocks become "hotter" such as the "dot-com" bubble in the nineties, but when the initial buzz around these stocks falter, the value of these stocks tend to crash.