The world is going through difficult economic conditions. Unemployment is everywhere, inflation has skyrocketed in the last five years, and many people are barely scraping by even after holding regular, decent jobs. Investment returns or ROI on government bonds and bank deposits have plummeted. Many of us can no longer look forward to a secure future with traditional modes of investment. We need other financial vehicles to help us keep our income appreciating at a healthy rate on a regular basis. The first option that springs to mind is investing in the stock market. But the stock market is a cruel playground. It can cut you a loss just as easily as it can fill you with a profit. Therefore, there is basic information that you should learn and consider before taking the plunge.
1) Do some research before you invest
By research I mean reading articles like this one and some basic financial and economic studies related to the stock market. Try to get an idea of how the stock market works and how you make a profit by investing. Understanding terms like “Bull”, “Bear”, “Intraday”, “Position”, “Blue Chip” and “Penny Stocks” should put you on the right track. As you research, you will get tons of information on trading strategies, trading styles, and how to effectively use “Stop Loss” to minimize your losses. The main idea behind stock investing is to buy a stock when it’s bearish and sell it when it’s bullish while holding a decent Stop Loss, so that even if the stock price falls after the purchase, it is automatically sold so that you don’t lose too much money. Simple, right?
2) Find a good broker
You need the help of a broker to buy and sell shares. There are many brokerage houses and independent brokers who would love for you to sign up with them. But you have to be careful before choosing a broker. The main thing to keep in mind is the “brokerage” they charge and their track record. There may be several people in your office or in your neighborhood who already trade the stock market. You can ask around and find out which brokers they use. After you have compiled a list of broker farms, compare their commission rate and successful calls. Generally, you should go for a farm that charges medium commission rates and has a decent success rate in terms of calls.
3) Have some dedicated trading money set aside
Before you start buying stocks, you need to have a certain amount of money set aside for trading. This should be the money that, even if lost entirely, will not affect your savings, livelihood, and other important matters. The reason behind this is that you cannot always expect upbeat returns from the stock market. Sometimes your portfolio will crash and your money will be trapped in the market. Therefore, carefully decide the amount of the trade money. If you don’t have that money to spare, you’re not ready to invest in the stock market. Try to save some money for a few months first and then enter the market.
4) Don’t put all your eggs in one basket
This is something every stock investing guide talks about. It is the fundamental driving force behind successful investors. This philosophy means that you should never invest all of your trading money in one stock. The right way to go is to invest portions of your money in multiple stocks. As a general rule of thumb, don’t invest more than 10% of your trading money in a single stock. That way you will never run the risk of losing all your money at once. This is a mistake many novice investors make when they start investing in stocks.
5) Don’t be intimidated by losses
Profit and loss go hand in hand in the stock market. There is no trader out there who has never incurred a loss in stocks. So if one of your stock prices goes down, always remember that it’s not the first and it certainly isn’t the last. As long as most of your shares are in the profit, you should be fine.
6) Keep learning about the topic
In the morning, get up before the market starts and read relevant news articles or watch TV shows about stock trading. The latest information will prepare you for the next day. Stay informed on all current business issues. For example, if a major company loses a major lawsuit, its share prices are likely to take a hit at least for the day. It’s the right opportunity to buy your shares, as you can sell them for a profit later, as the company recovers from losses and share prices stabilize.
7) Lean in to read monthly and yearly trends
These trends often hide information about great investment opportunities. There are certain things that you will learn as you gain experience in the market. For example, housing and construction company stock prices often decline during the rainy season, as construction projects stall during this time. Other dependent industries like cement, concrete and brick also fall during the rainy season. So you need to do a trend analysis of the last 2-3 years and if the prices match the assumptions each year, you need to know when to buy shares of construction related companies.
8) Stay away from futures, options and forex trading
your broker is likely to try to convince you to invest in Forex, futures and options. Don’t fall into that trap. These are very complicated financial vehicles that even experienced stock traders keep at a distance. You will have to learn a lot about the global economy and finance before you can expect to profit from these markets.
These are the top tips that come to mind when it comes to investing in stocks. There are tons of other information available on the net. Do your research well and be careful when investing. All the best for your success in stock trading.