Stock Market Strategies
There are many different ways to play the stock market. These stock market strategies vary in so many ways. In this post I’ll go over a couple of these strategies to help you decide which one is best for you.
You need to also take into consideration that some strategies require you to be more involved in the day by day market than others. All of them involve doing your due diligence in regards to knowing what you’re investing in. Research is the key to being able to make money in the stock market.
The buy-and-hold method is good for an investor who won’t have much time to follow the market on a regular basis. Once an Investor has found a company that (s)he wants to invests in, they build a position into the company and basically leave it alone. What you need to know is that you never buy all of your share in a company at once. Stock prices rise and fall all the time and if your timing is not right, you could lose a few percentage gains. Buying your stocks incrementally and not all at once will help you for when the price falls. You buy as the price drops to lower your cost basis (average price per share). With this strategy, I recommend that you don’t invest more than 20% of your total portfolio into any one sector. Diversifying your portfolio is the best way to hedge yourself against sudden drops in any one sector.
Day Trading is something that everyone has heard about. Day traders usually trade penny stocks, but are also known to do the same with mid-cap or larger companies. This is one of those strategies that require a lot of time during the trading hours. Unlike the buy and hold method, most day traders will not hold their position in any company for more than three to five trading days. This method is not good for those who are still new to the stock market.
Shorting a stock is a phase that is used when an investor believes that the price of a company’s stock is going to go down in value. What an investor does is that (s)he’ll borrow shares from another stock holder and sells them. The investor may have a particular date that he’ll need to return the borrow shares. During that period, the investor expects the price per share to fall at which time he’ll buy them and return those share to the lender.
There are other strategies, but I wanted to just give you a few for now. the others will be in a later post.
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How I Started Understanding The Stock Market
When I started trading stocks, I didn’t know what I was doing to a certain extent, but I kept on learning about the stock market and I ‘m understanding the stock market better each day. You don’t just study until you know it all because 1) it’s impossible to know everything since each day is different and 2) You can’t really learn about the markets unless you are in the markets.
I love the stock market and enjoy what I do for a living now. It’s taken some time for me to feel confident enough to do it as a full time job, and now that I have built-up a good looking portfolio and I don’t plan on getting a job where I work for someone else again.
When I was in my 20′s I used to listen to the headlines to get a feel for what was going on. Yes, I missed out on the boom in the 90′s, but that’s okay because there will always be another one. Once I had my finances in order I started to put about 5% of my salary toward an IRA (besides what I was putting in my 401K plan). I traded what the market refers to as penny stocks (stocks valued at $5 a share or less), which was pretty good since if I did my homework I could make 50% gain on the money I invested in a matter of a few days or sometimes in one day because of some great news that came out on the company. Don’t get me wrong, but there were also days that I would lose that much just as quick because of some bad news or mis-information.
You need to understand the stock market as well as how each sector affects each other. Oil and the world economy is something to take into consideration if you really want to be the best trader that you can be. You can’t possibly know everything about the markets, but the more you know the better off you’ll be. Take your time and learn the basics before you put your money on the line, but like I said don’t wait until you know it all. You to can understand the stock market where you can make great gains, but it doesn’t happen over night.
Tags: 401k plan, penny stocks, Trading Stocks, Understanding The Stock Market, world economy