Trading stocks can mean different things for different people. Some like to diversify their portfolio and not put more than ten percent of their available capacity into one stock, no matter how compelling. While others tend to focus on one specific stock, research it thoroughly, put a considerable amount of money into it, and then move on to the next stock, building their portfolio wall brick by brick. Another small yet loud subset of traders includes people that board every stock hype train they come across. Which one of these approaches is right for you?
General trading is, in a way, the most basic and barebones way of trading stocks. This method relies on your intuitions and prediction skills. You look through the market, find the best stocks that you think are going to go up and make a short-term investment in them. Then you hope that the market moves in the direction that you predicted. General trading being short term is the main point to notice, as you aren’t holding a stock for too long or relying on dividends.
Selective trading involves picking put stocks that are going to rise in under a year. This is easier said than done but isn’t as difficult as it may first appear either. Thanks to all the analysis tools available to everyone, even a retail investor can access the state of a company, look at useful information and predict the future of a company. All that’s left after that is buying and waiting.
Investors can also look at things like government regulations. For example, if it is suddenly mandated that every household should have a post box, then a company that sells post boxes is going to sell more and rise in the market. Similarly, granted patents can also show the future of a company. If a company gets a new patent granted, and you believe that the product made using that patent can earn the company some money, then investing in that company is a good idea. However, this is a form of stock speculation and though these companies may look appealing, they are also very high-risk.
This method of trading is fairly similar to selective trading, the only difference being that this is the trading method for the patient among us. Long-pull involves investing in companies that you believe are going to perform way better in the upcoming years and the ones that will take over their competitors. These companies can be newcomers that have a huge potential for growth or established companies that are reinventing themselves or heading towards reforms that will lead to future success.
As mentioned earlier, the patient is the key to this kind of trading. There is no guarantee that the company is going to keep a steady upward momentum. There are going to be times when the stock drops a bit, and there can be several reasons behind it. But, unless the company is crumbling completely, there is no need to panic sell.
At its core, momentum investing is all about catching the wave mid-way and getting off before it goes downwards. This method is especially useful for folks that don’t trust their prediction-making abilities or simply lack the knowledge and experience to make predictions that aren’t just random guesses. But, it isn’t as easy as it may appear. You need to have an understanding of the force behind the wave and your place on the wave. In other words, you need to know whether the wave will rise high or not and understand your position on the wave. If you catch it too late, you can end up losing money as it will plummet soon after your investment.
Buying the dip:
This might sound similar to momentum investing, but it isn’t. While that is about catching a rising wave and jumping off before it goes downward. Buying the dip involves purchasing the stock of a company when they are at their lowest. There can be so many reasons why a company’s stock dropped so much. As long as the company isn’t going completely bankrupt, there is a high likelihood that the stock price is going to rise again, making you some money in the process.
Stock trading and investing offer a great opportunity for any to make some money. You don’t have to be a professional trader with millions of dollars, an index fund manager, or even need formal financial education. You can start with any amount of money and the ability to search the internet for relevant information.