Like anything else in life, stock trading and investment requires some knowledge. Although it may look a little complicated at first, one can read and understand much about stock trading on their own. So do not allow the process to intimidate you. You can do this and do it well, armed with the required knowledge. There are many good books on stock trading available in the markets written with beginners’ interest at heart.
Begin by reading and understanding the fundamentals of stock trading, the stock trader must know why they are buying any stock. Some people compare stock trading to gambling. It has some similarities but it is not exactly the same as gambling. If you don’t know why you are buying a stock, then you may be gambling with your money. This article will explain some of the most profitable techniques which successful stock market investors often use in trading. You can understand and use these strategies as well
First let me do a little introduction about stock market investing. When companies go public, they change from private companies to public companies. This means that they may issue shares which would be traded in one of the trading exchanges such as the New York Stock Exchange or the London Stock Exchange. The stock exchange is where all stocks are traded. Two most used methods for trading are the Open Outcry system, or the computerized trading system.
Unless you decide to use brokers you may end up doing the research about the companies you wish to buy their stocks by yourself. The advantage to doing this yourself is that you pay very small fees to trade your stocks by yourself directly through your computer. If you opt to trade through a broker, then you may want to contact one of the traditional brokerage companies. They would do the research for you and help to give you advice about how to choose the industries and sectors to invest in, and other issues including buying and selling decisions.
If you plan to do the trading and research by yourself, then this article will help to show you some of the most important strategies and techniques for researching and selecting your stock investment portfolio. This article will also discuss the online trading method and show you how to begin trading online, and explain to you, what brokerage account is and show you how to open a brokerage account required for stock market trading and investment. You will also learn about margin accounts, as well as the importance of constructing a balanced portfolio of investments in different sectors. This method is known as diversification, it is extremely vital to a successful stock market investing.
Traditional Analysis
There are two standard methods used in researching companies. The first method is traditional analysis, and the second strategy is known as Technical Analysis. This segment will discuss Traditional Analysis; potential investors can research stocks fundamentals to get all the important information about the company prior to buying the stock. This method of research is as old as stock trading itself. It is the same method those generations of stock traders have relied upon to investigate stocks and their companies by taking a comprehensive look at the company’s financial health.
Prior to buying the stock of any company, the investor must research the company, but they must first decide on what types of companies they are interested in purchasing their stocks. They should also look at their net asset value/earnings per share. This would enable the potential investor to see how well that company is doing. It is also advisable to look at the company’s sales and profitability over a period of years. Ask the following questions, is the company paying dividends to its investors? How much dividend is the company paying for the current year, what is the analyst’s outlook for the company for the near term, how well is the company managed, these issues must be evaluated by any potential investor prior to investing their hard earned income.
Technical Analysis
The second method of research is known as technical analysis some people refer to it as Chart Analysis. Many formations occur within the trading charts of companies, and technicians have tested those occurrences over a period of years and are now able to predict what might happen when such patterns occur. For instance, when a triple top formation occurs, it generally leads to a downward pressure on that stock, and a time to sell that stock short, or buy put options on that same stock. On the other hand, when a triple bottom formation shows up on the stock chart, it often signifies buying pressure, and the stock may advance. When trading, you should always identify the trend, and never fight the market. The trend is your best friend in the markets, and there are signs to know in advance when a market is nearing the top or bottom.
Online Trading
With the proliferation of technology today, many investors have used online trading very successfully to create wealth. The first step for anyone interested in trading stocks online is to open an online brokerage account. Different brokerage companies have their own minimum requirements. The minimum deposit for individual online trading account ranges from a low $500.00 to $5,000.00 or more. Your initial deposit amount would determine how much stock buying power is available to you. You do not have to trade only with the amount in your trading account; you may trade stocks on margin which will boost your total trading account by additional about fifty percent of your account value.
Margin Account
For instance if you deposit $2,000.00, your margin stock buying power would be $4,000.00. Margin allows you to purchase additional stocks equivalent to the amount in your trading account. Buying stocks on margin simply means borrowing money from your brokerage company exclusively for the purpose of trading. Through this process, stock traders can buy more stocks even if they do not have all the money to cover their stock purchases.
Your broker can only open a margin account for you if you sign a margin trading account application. But any losses you encounter trading with margin loan will be deducted from your cash deposit, and when your cash account dips below certain level you may receive a margin call from your brokerage company asking you to deposit certain amount to bring your account back to the minimum required to maintain the margin requirements
Diversification
One mistake many investors who are new often make is non-diversifying their investment portfolios. The market has many different sectors, such as technology, Oil and Gas, Financial, Biotechnology and many others. An investor must learn how to spread risk by balancing their investments. It is a wise thing not to invest in one sector alone; a balanced portfolio helps to limit the risk, it is not recommended to invest mostly in one sector alone.
Conclusion.
Once you completely understand these steps outlined here, I would also suggest you buy one or two good books on the stock market and read as well. These are important sources of additional information needed for a successful trading. It is always a good idea to do paper trading first. This is another word for simulated trading. This method will allow you to acquire hands on experience with actual trading without using your hard earned money at that stage.
Most brokerage companies have such program for new stock investors once they open their stock investment account. You are now fully armed with most of what you need to begin, the rest of the stock investment education you will pick up through experience once you start trading. One rule of the thumb to always remember is to buy at dips and sell at high, this method is also commonly referred to as buy low and sell high. There you have it, good luck with your stock investing.