Thanks to modern technology and the wealth of information and advice readily available on the internet, you can now try your hand at stock trading right from the comfort of your couch. While it’s one of the most lucrative ways to build wealth, stock trading can be quite complicated and stressful if you don’t have the proper knowledge.
There are two types of stock traders: active traders who grow their nest egg over time by making ten or more trades a month, and day traders who play Hot Potato with stocks – buying, selling, and closing their positions, all in the same day. No matter which category you belong to, there are a few things that you should know to up your trading game. Here are a few tips and tricks every stock trader should know to improve their strategy and gain.
Choose Your Broker Wisely
There are dozens of different platforms out there that provide brokerage accounts to those who want to start investing in stocks, each one offering different types of accounts with numerous features and varying fees. Make sure you pick one with the tools and terms that best suit your investing style and needs. For example, if you’re an active trader, you’ll want to look for a brokerage company that charges low commissions and promptly executes orders for time-sensitive trades.
If you’re new to the market, it would be wise to look for an experienced broker who can provide you with tips and resources to teach you the tools of the trade. Other features to look for in a brokerage company include screening and stock analysis tools, stellar customer service, easy order entry, and on-the-go notifications.
Diversify Your Portfolio
You don’t want to put all your eggs in one basket – so to speak – because you’re bound to take a hit at some point or another, and you wouldn’t want to lose all the money you invested if the company went under or something disastrous happened. According to Nathan Michauds trading system, diversifying your portfolio reduces your risk of losing all your hard-earned cash. You see, it’s better to invest 10% of your money in ten different companies than to put all of your money into one company. That way, if a company’s stock price drops, it would only cost you 10% of your portfolio.
Besides buying shares in different companies, you can also invest in mutual funds, buy stocks with different market capitalizations, or sign up for a Robo-advisory service to build a diverse portfolio. A Robo-advisor is a software that will automatically rebalance your portfolio and handle all the day-to-day activities for you. All you have to do is withdraw and deposit funds as needed.
Do Your Research
Whether you plan on buying individual stocks or mutual funds, doing your due diligence is essential. That means researching every investment before spending any money on it. All publicly listed companies are required to submit certain documents to the Securities and Exchange Commission each year. These documents include information about the company’s expenses, revenues, account balances, and more. Go over these documents carefully to get an idea of the company’s current and future performance before investing in it.
The most important metrics you should keep an eye on when researching include earning per share (EPS) and price-to-earnings ratio. Some traders use technical analysis to estimate the future price of stocks or shares based on the patterns in the current price charts. If this sounds too complicated for you, consider looking for a stock analysis tool that provides you with accurate, real-time updates, price quotes, and news about publicly traded companies.
Set a Budget and Avoid Leverage
Invest only the amount you can afford to lose; this is one of the most important stock trading rules. Set a trading budget and resist the temptation to use leverage unless you have sufficient market experience and exactly know what you’re doing. Leverage is money that you can borrow from your brokerage company. It can be extremely dangerous, though, because it makes the gain much more exciting, but it also doubles the loss. While advanced traders sometimes use it to execute specific strategies, it’s usually best to avoid leverage, especially if you’re not familiar with the ins and outs of the stock exchange market.
So, there you have it! These tried-and-tested techniques should hopefully help you improve your strategy and make the most of every dollar you invest. Don’t forget to measure your profits against an appropriate benchmark. This could be the NASDAQ composite index, the S&P 500 index, or other smaller indexes that measure publicly traded companies’ performance based on industry, size, and geography. Monitoring your returns is key to your success in the stock exchange market. Good luck!