Top 10 Stock Trading Strategies For Beginners
Stock trading is a great way to make your money work for you. It is an excellent opportunity for you to earn a bit of extra cash and make your asset value catch up with the constant inflation that’s going on in the economy. If you’ve only just begun trading, here are a few stock trading strategies to keep in mind that will help your trading experience more profitable:
Before diving into the trading scene, ask yourself the following questions: Why are you trading? When will you need the money back? What is it for? Retirement? Education? Travel? Building an estate? Buying a property?
By knowing the full purpose of why you want to trade, you’ll have an idea how much capital you’ll need, what funds to invest in, how to trade in such a way that will help you achieve your goals, and answer whether or not trading is really the answer to your money woes.
Be realistic about your expectations
Expectations are but an extension of your goals. While you should not blindly leap into stock trading without any expectations in mind, you should also not expect to get rich right after the first trade. Many traders lose about half of the time. However, their winning trades usually make up for their losses. Try reading up on day trading success rates, so you have a rough idea of what is normal to experience and work your stock trading strategies based on that realistic feedback.
Formulate plans and stick to it
Decide on how much you are willing and able to invest early on in your transactions. Pack on a plan and decide at which point you should trade out, including when to pull out for losing trades. Don’t be tempted to veer off of your plan because you’re too nervous or losing too much, or if you get too excited about earning more. Try to keep a level head. Always look back to your original plan and stick to it.
Understand risk-reward ratios
You will do well to include analyzing the risk-reward ratio in one of your stock trading strategies. The ratio tells you a lot about your wins and losses, and you can tell by it whether you are losing your overall trade or gaining profit. Traders use risk-reward ratios to manage their losses as well as their trading capital. It helps them determine the amount of risk their individual trades have and, therefore, can impact their expectations.
Stay on top of news and current events
On top of your basic knowledge of trading, you should also stock up on news and current events that may affect the stock market. Business news, financial websites, and national updates on economic outlook are some of the resources you should routinely check. So in-depth research on the companies you are investing in and keep track of their performance from their websites as well as financial reviews and news from third-party sources.
Spot good entry points
One smart way to invest is to enter the scene at the right moment. One of the most popular stock trading strategies is to enter the trade when supply and demand are drastically out of whack. It is like taking advantage of situations where there is an abundance of supply, and the prices are amazingly low. You can expect that as supply goes down, it gets more and more expensive -just like how it usually is in real life.
Be prepared to lose
This part is one of those stock trading strategies that are purely internal. You cannot expect to enter the trading arena and win a hundred percent of the time. Even seasoned traders still experience losses every now and then. So, what if you’re not the gambling type? What if you’re not a natural risk-taker? Does that mean you should hook up your stock trading dreams to a ball and chain and hoist it overboard? Not necessarily. There are ways to invest conservatively so that you don’t need to stress over minimizing risk all the time.
Invest disposable income ONLY
If you are just starting out, going big to the point of going broke is not a wise move. Calculate your disposable income and work only with funds that come from there. There is no point in investing for a dream house if you end up blowing your monthly rent or forgoing your groceries. While taking calculated risks, make sure to keep yourself protected by having at least four to six months worth of expenses stored away for emergency use.
Keep a cool head
While you may be tempted to act on a whim and get lucky, the chances of this type of “strategy” working are one in a hundred. If that still seems feasible to you, imagine losing ninety-nine times before winning some? You might end up living on the streets if that’s how you plan to operate in stock trading. Learn to keep a level head and trust your stock analysis to get you through. While it might not make you win all the time, it would definitely keep you from losing everything in the process.
If there is one from the roster of the best stock trading strategies that gets reiterated so often that even non-traders know it, it’s not to put all of your eggs in one basket. Diversification is your protection from the drastic loss that can come with investing all of your assets in one stock. A diverse portfolio is a healthy one. This is the reason why you need to do your homework and research on different companies to see which ones you would want to invest in. Start with a handful of stocks and then work your way up from there. According to this article, you can have up to thirty borrowing investor stocks and forty lending investor stocks to maximize the benefits of diversification.
As you go on through your investing journey, you will likely pick up a couple of lessons from your losses and motivation from your wins. Make it a point to learn from your experiences, take some advice from seasoned investors and online classes, and don’t lose sight of your ultimate reason as to why you are trading.