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Stock Trading Strategies
Stock trading is a type of investment and trading that has existed in various forms for nearly a thousand years. It is a tried-and-true method of investment that has stood the test of time and has created fortunes beyond counting. It may also surprise you that the greatest fortunes were made when the stock markets were at its lowest during recessions and the Great Depression. Shrewd traders know that times of crisis like these represent golden opportunities to create wealth through stock trading.
However, don't be fooled into thinking that stock trading is an easy road to riches. It isn't.
Many many people have lost their life's savings trying to play the stock market, and it can be a very vicious world to those who have not spent time educating themselves about it. The keyword here is "education". Just like any other form of investment, you need to know what you are doing before you can expect to survive in the stock market. Investing based on 'hot tips' or 'water cooler gossip' is definitely not going to end well in the long run.
The basic premise of stock trading is this: you buy the stock of a business for the amount that you think that business is worth. And what a business is worth will depend on how much profit it is making and how much dividend it is paying its shareholders. If the general sentiment is that the business will improve, then its stock will go up. If people think the business is sliding, then so will its stock.
One method of trading stocks is via buying and holding. Certain investment strategies support buying shares in very stable companies and slowly growing their investment and continually earning dividends.
A more "glamorous" method of stock trading is via speculating. If you think a company will surprise the market/people (in a good way), then you might want to buy stock in that company hoping that it will go up. However, the stock could fall if the news happens to be bad or an anti-climax, hence the risk of speculation. Common situations where speculation is abundant is right before companies release their annual report or earnings, or when drug companies are about to release the results of drug viability tests.
There is also what's called an Initial Public Offering (IPO). When a new business (or a formerly private business) is about to go public, sometimes investors are allowed to "pre-buy" their shares before actual trading, usually at a price that is lower than what it will trade at on the open market. A common strategy would be to buy on these IPO's then sell the shares at the higher market price once they get on the market.
These are just some of the strategies people use to trade stocks. As has been mentioned, educating yourself is key.
Factors you need to think about when you're considering investing in stocks include:
- Your investment goal - what gain/income you are targetting
- Your exit strategy - a definite condition/time when you will drop the investment and cut any losses
- Amount of time you want to invest in it - are you a day-trader?
- Stock fundamentals including Price-Earnings Ratio, Profit-and-Loss Statements etc
- Short-term and long-term growth prospects for the stock in question and its industry
- Current market/economic conditions that will influence your investment strategy
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