If you’re actively looking for a hands-off approach to making money on the side, you’ve probably considered venturing into a stock trading at some point.
Stock trading allows you to earn extra dollars without putting in considerable effort. In most cases, you need to analyze the trends in your niche market and select suitable investment options. You can then buy the stocks at their lowest prices and sell them when the prices are highest.
And if you still find this hassle-free process too tedious, you can always engage the services of an experienced stockbroker. A stockbroker eliminates the need to monitor the stock market actively. Your role is only limited to providing the required investment funds. while the broker does all the hard work.
But while stock trading may sound so enticing, it’s far from being the easiest way to make money. You’ll still need to implement specific tips to make it big.
Here’s a definitive guide to excelling in stock trading.
Develop an Investment Strategy
Stock trading is a lot like a regular business venture. The best way to approach the industry is by developing a robust investment plan.
A stock trading investment strategy is a set of rules that help you determine the best investment time. The main idea is to prevent you from making decisions on a whim or out of unrealistic fear or hope.
Understand the Concept of Price Index
The price index is a measure of relative price fluctuations. The concept of indices prices is an invaluable tool in determining the stocks to invest in.
Measure Changes in stock prices over specific periods.
Some indices indicate price fluctuations over a 24-hour period, which can be helpful for day traders (more on day trading later on). Others show changes over a weekly, monthly, quarterly, biannual, or annual bases.
Don’t Be Swayed By Current Stock Prices
This is a common mistake made by novice stock traders. You wake up one morning to find that the stock prices of an established multinational company are meager, and without a second thought, you blow all your fortunes on it.
It’s a decision made with good intentions. But one that can have devastating financial and emotional effects.
It’s worth noting that the current stock prices could sometimes result from undervaluation as opposed to the stock’s intrinsic value. Undervalued stocks have a way of correcting themselves within a given period.
Another danger of buying stocks when the prices are abnormally low is that you could be investing in a company that’s going under. That’s all the more reason to conduct extensive research and analysis before purchasing a stock.
Stay Updated On Industry Trends
Keeping abreast of industry trends doesn’t only come down to honing in on the best-performing stocks. It also entails understanding the legal landscape and the tax implications of the stocks you wish to trade in.
For instance, cannabis stocks could perform exceptionally well in a country or state where marijuana is legal. But all that could change overnight if a piece of legislation were to be passed criminalizing cannabis products.
Choose the Right Investment Style
Regarding stock trading, there are several investment styles to experiment with. Whichever plan you choose ultimately depends on the funds at your disposal and your long-term investment goals.
Common options include;
Day Trading
As the name suggests, day trading entails moving in and out of a particular stock within 24 hours. It’s the easiest way to invest in stock trading but is recommended for proficient traders with a good understanding of market dynamics.
Selling Short
Short-selling is all about betting that a stock’s price will fall. To go about it, you’ll need to borrow shares of stock and sell them at the current prices. You can repurchase them later and return the shares to the lender. You earn profits if the stock price falls in the meantime or incur losses if the stock prices rise.
Trading in Over-the-Counter Stocks
Over-the-counter stocks are stocks that don’t trade on a public exchange. Instead, they’re typically available directly to individual traders and usually for prices as low as pennies per share. One disadvantage with OTC shares is that most companies trading this way tend to go under. That said, you could earn millions of dollars if you invest in stocks of a stable company.
Meme Stocks
Meme stocks, such as AMC Entertainment and GameStop, have registered tremendous popularity recently. But like over-the-counter stocks, meme stocks can be highly unpredictable. That makes them suitable only for short-term investments.
Diversify Your Investments
As we’ve just pointed out, there are multiple ways to invest in stock trading. You don’t have to channel all your funds into one investment option, not when you can diversify.
Diversification allows you to spread your risks. If one investment channel collapses, you can always fall back on the others.
The best way to diversify is by investing in short-term and long-term options. You might also consider a combination of a buy-sell or buy-hoard investment plan.
Summary
Stock trading can make you an overnight millionaire or pauper. It all depends on how you approach the industry.
Feel free to follow the above-listed tips to become a proficient stock trader. Better yet, you could choose a stock broker to help you navigate this often-unpredictable industry.
