Stock Market Trading Strategy
If you’re going to trade stocks, you’ll need to find a stock market trading strategy that will work for you. Not all strategies work for each trader or investor. So to know which one is good for you and your financial future, you’ll need to try different ones. Depending on the condition of the economy and the overall markets, you will most likely use a combination of a few.
One strategy that should be followed is never investing all of you capitol into one or two companies. The typical amount of money invested in a company should not surpass 20% of your total portfolio. Keeping your portfolio diversified will help prevent major losses during any particular time. Invest your money within several different sectors (ie: commodities, equities, precious metals and bonds).
The buy and hold method is a strategy that doesn’t require too much work. Yes of course you’ll still have to do your research into the fundamentals of the company. What I don’t like about this type of investing is the fact that you are not paying attention to what is really go on with your investment. If you what to make the most out your investments, you need to be active and watch what the company as well as the overall market is doing
Shorting stocks is one of the more popular ways to play the market. The idea is that a trader believes that a certain company’s stock price is going to go down in price. A treader will go ahead and borrow share from an investor. Within a certain period of time, the trader will have to replace the shares he borrowed. The trader in turn sell the shares at the current price. When the price per share has dropped, the trader will buy shares to return to the investor. This type of trading is not for those who are just starting out in the stock market. You’ll need to get a good understanding of the stock market before you start shorting stocks.
After you’ve been trading stocks for some time you might want to look at day trading. Be careful though, many average investors have lost more money than they’ve made doing day trading. You need to be quick and alert to what is going on in the markets on a daily basis. Many day trader will trade penny stocks because of the higher percentages that can be made in a day, but you can lose just as much just as quick.
Whichever stock market trading strategy you decide to use, make sure you do your due diligence and follow the news on the companies you’re invested in.
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Stock Market Strategy
There’s a lot more to the stock market than just buying and selling, but where do you start? In this post, I’ll give you some ideas to help you figure which stock market strategy is right for you. You don’t have to stick to just one way of trading stocks.
1. Research and Due Diligence
This is a must if you want to be successful in trading stocks and investing in your future. Before you buy any shares of any company, you must know how fundamentally solid they are as a business. Look at their balance sheets and their financial reports. Any company traded on any of the major indicies must report periodically to the Security and Exchange Commission (SEC). Are they profitable? What kind of guidance are they given for the near (next Quarter) and the distant (annually) future.
2. Buy and Hold
The name speaks for itself. Once you find a company that has great growth potential and has a good grasp of their industry, you buy stocks of the company and hold on to them for a long period. This strategy doesn’t work out in cases where an investor puts his money in just before the markets go through a correction period like we saw in 2007 -2009.
3.Day Trading
Another strategy that isn’t hard to understand the concept by the name. This type of trading is not wise for the new investors and traders to get involved with. You need to understand the markets as a whole before doing so. In a unstable market, the price per share for most companies fluctuate greatly to give opportunities to experience traders to make money
4. Trailing stop
I like doing this type of treading in almost any type of market. In doing a trailing stop you are trying minimize your loses especially when you don’t have the time to monitor your portfolio on a regular basis.
When you put in a buy order (limit or market) with a trailing stop you must include a sell activation price too. If you buy 100 shares of XYZ Corp. at $35 per share, and you set your sell price by either percentage or points of the price of the stock. Let’s say we put a trailing stop of $1.00. as the price moves up in value, the sell price moves up also. If the stock moves up to $40 per share your sell price will be $39. If the stock comes down without going below the activation price if $39, you will still hold to those shares. Once it falls below the activation price, the sell order will trigger.
If instead it never falls below $1.00 of the highest price it hits once you’ve placed the order, you will continue to make gains in the stock and minimize your loses.
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What Stocks To Buy
Everyone is looking for what stocks to buy in today’s market. That is why it important to do your research on a regular basis to keep up with what’s going on. The stock market is changing everyday and to make sure that your portfolio is growing, you need to stay informed. In today’s economic environment it’s hard to make sense of most of what goes on on Wall Street. No matter what report is released for the day (retail sales, unemployment, existing home sales, GDP, etc.), it seems to not effect the markets the next day.
Just recently during earnings report season, Bad economic data was coming out through the week, but the earnings reports were beating the street’s expectation. The DOW’s closings for the week were so erratic which swung over 400 points. Bad news came out on Tuesday, but the DOW finished up 250+ for the day only to come down 300+ on Wednesday.
So when it comes to knowing what stocks to buy, you need to do your research and your due diligence. If not, you’re not going to be able to make profits in your portfolio. It’s been said many times that for each stock that you invest in, you must do at least one hour per week on researching the company as well as the sector it’s involved with. What may be a good solid company when you first bought the shares may not be a few weeks or months later. Stay informed and you won’t get taken by surprise.
I never buy all my shares at once. I buy incrementally to help lower my cost basis (average price per share). I know before I buy any shares of a company how much money I’m willing to invest in total. If I’m going to invest $20,000 in a company, my first purchase will be for $5000 in shares. So if the price per share is $50, I buy 100 shares. If the stock drops 5%-10%, I’ll purchase another 100 shares. But if it drops more than that for no apparent reason other than it was dragged down by the entire market, I’ll buy 200 shares instead because I know that the company is still solid and doing the right thing that when Wall Street realizes that the stock was oversold, the price will be right back up to $50 or better.
A lot that goes on with making money on Wall Street has to do with timing. you need to be in the right place at the right time. To make sure of that, you need to do your research to know what stocks to buy.
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