To anybody new to the exciting world of stock trading, there are vital steps to consider before and during the process. These keys provide a solid foundation for your investment strategy and needs. Instilling a basic understanding is a key overlooked attribute to successful trading. Below resides the key basis for building a successful investment strategy. Implementing these fundamental basics is the structure that can make all the difference in the world of stock trade.
Chart Your Purpose
The first and most important step of investing is to determine why you are investing in the first place. Are you looking to make a quick buck or gradually expand your portfolio through day trading? Conversely, are you in it for long-term investment? Establishing the foundational purpose for buying and selling your assets can be a cornerstone to your success in market trade and can also minimize losses.
Going into stock trading aimlessly, on the other hand, is a recipe for disaster. Investing without a purpose is often the precedent for large losses while having a plan often leads to investment gains. Instead, be sure to set yourself for success by trading — whether it’s buying, selling, or holding — with a purpose.
Chart Your Target
Charting your targets means determining the type of industry or the type of technology that you wish to invest in. Your investment targets should center around the type of product or business you believe has the best upside. If possible, aim your investment targets around a category that you’re familiar with.
Do Your Research
Research your targets by observing expert projections and opinions in addition to visiting company websites. Carefully perform your due diligence by familiarizing yourself with the company you are considering investing in. One overlooked highlight to observe when researching websites of potential investments is company standards and safety procedures.
Company safety became a necessary study for investors after the BP oil spill caused a monumental sell-off. Any company that poses a safety risk can be volatile and can quickly find itself being shorted. In turn, any negative news regarding company safety issues causes a sell-off that can leave you holding the bag. Any company website that boasts OSHA 10 safety training or higher is a good indicator of high company safety standards.
Most importantly, however, be aware of upcoming products or press releases that may be of significance to the target company. Being up to date with the company you invest in is what helps you determine when to buy or sell. Never invest in a company you haven’t personally researched or have no knowledge of.
Never Buy At the Rise
Buying shares after a stock has risen considerably is the worst time to invest. Unfortunately, this is one of the biggest mistakes people make when they first begin investing. If you’ve seen a stock rise, accept that you already missed the boat — at least for this go around.
When you see a significant rise over a short period of time, do not take the bait. There’s always a fall, usually hard, after this initial rise. Wait for the gains to ride out until its inevitable and sudden decline This is called buying at the dip, and you’ll be extremely glad that you waited, rather than buying shares at their peak price and having a too-high cost basis.
Proper Diversification
Properly diversifying your investments helps you avoid the potential for large losses during unforeseen instances of market volatility. That’s why it is important to diversify with a purpose and not just for the sake of diversifying. Spread out your investments across different industry types, but also make sure you’ve done your research on those industries.
Never Panic Sell
When you see your stocks decline or plummet, unless justified by company-shattering news that initiated that sell-off, do not make the rash decision of selling off your shares. Remember that the market tends to fluctuate. Such as is the case in life, and there’s always a rise after a fall, just as there’s always a fall after a rise.
Ultimately, a loss is never a loss until you actually close out your position. But once you hit that sell button and get rid of your shares, there’s no turning back. Many people who panic sell end up losing much more than those who were patient and didn’t make impulsive decisions. Not being rash on the sell button can be the difference between monumental losses and monumental gains.
The Final Word
Utilizing the fundamentals provided above is an exceptional guide for any beginner getting their feet wet in stock trading. Use discretion while trusting your instincts when buying or selling. Bear in mind you haven’t truly lost or gained anything until you sell. Patience is as much a virtue in stocks as it is in life unless you’re day trading. Get a feel for market numbers and volatility, as this changes by the day — and even sometimes by the hour.
