Stock Market Investing For Beginners
Introduction to Stock Market Investing:
A stock is a small share that represents an equal part of ownership of a company. The stock market in general is a huge, automated superstore that allows exchanging of stock between buyers and sellers. The Exchanging process that takes place between the sellers and the buyers assists in setting the prices of the shares and facilitates the trading process. In other words, the stock market works the same way as any marketplace; it helps exchanging goods between different parties, setting prices, and operates to minimize the distribution costs. Stock market investing is becoming one of the most important investment decisions, it is considered a very good decision in the long term; this is because it involves risks and returns. In the stock market, your money is at a higher risk than if it was invested in a savings or CD, thus the expected possible returns become higher.
The stock market is always changing and competitive, there are some times where the changes make sense, but on many other times no one can demonstrate the reason for these changes. The supply and demand drive the stock market, the supply is represented by the number of available shares of stock, whereas the demand is represented by the number of shares that are required by investors. For every share that is bought by an investor, it is at the same time sold by a supplier on the other end. There are continuous fluctuations in the stock market, where the stocks within it rise and fall regularly. Many people mistakenly believe that when a specific stock is rising, then it will continue rising in the proceeding period and vice versa, and they make decisions based on this belief. But in fact, following this gut instinct will probably result in purchasing at high rates and selling at low ones. It’s important to understand that when stocks fall, they become less expensive and thus less risky. The same thing takes place when stocks rise; they become more expensive and thus more risky. Many investment writers claim that whenever the stock goes up then it becomes safer, but unfortunately, this is significantly wrong. Buying a stock is very similar to buying at the grocery store, whenever prices increase we get less excited and buy less, this is why when stock prices increase, it is more expensive to purchase the same stock. However, there are rare times where essential information arise and drive the way we value a stock.
In general, the fluctuations in the stock market can cause large gains and losses, but if the time horizon of an investment is sufficiently long, these short term fluctuations will lead to relatively high returns. The stock market is expected to rise quicker than underlying earning during periods of economic growth and prosperity, whereas it is expected to work worse during hard economic situations, political uncertainty, and lower consumer confidence.
Stock Market for Beginners:
Stock market for beginners often seems very discouraging. Many people believe that it’s a dangerous place to invest in, but in fact, stock market investing can be very safe, and most of the fundamental concepts can be simply applied by beginners. Understanding these concepts will enhance your decisions about stock market investing. Most people get involved in stock market investing without the sufficient knowledge, and they expect to gain large returns, but end up losing too much, this is why it’s very important to understand how the stock marker performs, and what to anticipate from it. When you observe the stock market investing history, you will know that the investors’ emotions are their worst enemy. There were times where many individuals thought that the financial world was coming to an end, and at every single time they were significantly wrong. It is impossible to determine how the market will perform in the future. Having a good stock market investing plan will keep you calm and feeling safe during the continuous ups and downs of the stock market.
The stock market for beginners usually seem very attempting, it appears like a place where they can receive fast financial returns. Many individuals regret not investing in certain stocks after these stocks’ prices rise. One should know that he/she can make money in the stock market, but this money doesn’t usually come fast. Acting slow and calm is one way to be successful in stock market for beginners. To be successful in anything in life, you have to be patient, thus beginners should spend enough time to receive the sufficient knowledge and determine the appropriate stock trading strategy for performing successfully in the stock market.
Photo by sjsharktankStock Market Investing Strategies:
There are different trading strategies (Short, Medium and Long term) for every market conditions, and the process of selecting one strategy can be a very exhaustive task. The strategy that you will decide on should be part of your plan of stock trading, and it should assist you in limiting the choices for stock selection.
First, the short-term stock trading strategies, they involve losing confidence when high risks arise, this will result in losing whatever the investor worked for so fast. It includes Momentum Stock Trading, Penny Stock Trading, Shorting Stocks, News Trading, and Extended Hours Trading. The Momentum Stock Trading is based on complying with the trend, and when researching you should concentrate on determining stocks that are becoming of more strength (strong uptrend and downtrend). The Penny Stock Trading is concerned with trading with stocks that have extremely low prices. This strategy is of a high risk because it is hard to find information about penny stock companies, and a stock can be easily influenced and manipulated. The Shorting Stocks focuses on receiving profits from the decrease in the price of a stock. This strategy is very risky because it depends on stocks that experience significant falls, and is mostly used by professional traders. The News Trading strategy is concerned with following the most crucial and real time public statements (Macroeconomic new releases, earnings releases of companies, bond auctions, political speeches, etc). This strategy is short term oriented. The Extended Hours trading strategy is usually combined with News trading. It involves a trader buying or selling a “moving” stock before or after the market opens/closes, and then the position gets closed inside the regular hours of trading.
Second, the medium-term and the special stock trading and investment strategies, they include; Gap Trading, ETF Trading, Elliott Wave Theory, Fibonacci Trading Strategy, Contrarian Investing Strategy, and Following Insiders. The Gap Trading strategy involves gaps which are sections on a chart where the stock price moves significantly up or down without any trading taking place. Gaps take place for different reason, for instance, when the earnings of a company are much more than expected, as a result, the price of the stock starts higher than it closed the day before. These gaps are discovered by traders who want to profit when the price of the stock reverses to meet the gap. The ETF Trading strategy involves risk diffusion, and it contains a set of stocks in a certain region or sector. It could be short, medium or long term. ETF and Momentum trading strategies are usually used together. The Elliott Wave Theory strategy depends on a theory that the psychology of the investor drives the prices of the stock up in a set of five waves and down in a set of three waves. Charts are used by traders to figure out these waves. The Fibonacci Trading strategy involves the usage of Fibonacci sequence in trading. This type of technical analysis demonstrates the possibility that the price of a financial asset will follow a large part of an original move and detect support or resistance at the major levels of Fibonacci before it goes on in the original direction. The Contrarian Investing Strategy focuses on gain returns by investing in a way that is different from the conventional wisdom one. Finding and buying stocks after their prices have decreased, and selling them when their prices increase can lead to very high returns. The Following Insiders strategy involves observing the main insider trading transactions. Insiders are directors and officers of a company or stockholders that posses at least 10% of the company’s equity.
Third, the long-term investment strategies, they include Income Investing, Value investing, and Growth Investing strategies. The Income Investing, also called Investing for income, focuses on stocks that provide high dividends. These stocks are usually volatile and safely pay dividends every year. The main aim of this strategy is to hold a low risk stock and generate income. The Value Stock Investing strategy focuses on determining stocks from successful companies that are severally undervalued comparing the price of the stock to their true value. When investing in these companies, you need to know the company’s fundamentals in order to realize their actual value. The main aim of this strategy is to combine capital growth and income generation with a medium level of risk. The Growth Investing strategy involves determining stocks that have a high growth possibility. This type of stocks is usually riskier than value stocks because they have a higher possibility of going down. These stocks sometimes don’t pay dividends because they use the company’s profits for future investments. The main aim of this strategy is capital growth but still involves high levels of risks.
Stock Market Tips and Recommendations:
There are several recommendations that should be taken into consideration when getting involved in stock market investing; first, it’s important not to try to time the market. Timing the market is usually impossible, and there isn’t any factual way to decide on its different trends. Second, use cost averaging. This can be achieved by purchasing shares on periodic basis, through this purchasing technique the shares will be bought at an average price, rather than bought on times at high valuations. Third, taxes should be taken into account. Purchasing shares and keeping them for more than one year will enable you to be taxed at the long term capital gain rate, whereas if you sold the shares before the end of the first year, you will be taxed the ordinary income tax rate, which is usually higher (sometimes twice high). Fourth, invest into tax sheltered 401K and IRAs. Investing in these tax plans will enable you not to be concerned about the implications of taxes. Through investing using the 401K plan, you can invest earnings before taxes, which will result in growth of investment at a higher rate. For instance, if you obtained a paycheck for $2,000 gross pay and taxes were gained, you’ll have the remaining amount after deduction to invest, whereas if you invested the same $2,000 in a tax deferred account, you will be earning a return on the whole $2,000 without any deductions. Fifth, make your investments more diverse. This can be achieved by investing across different stocks, and not only one or two stocks. You should purchase not less than 15 different stocks if possible; otherwise try to purchase one or more mutual funds to diversify.
Finally, there are few tips that beginners involved in stock market investing should consider. First, one should understand that investing isn’t a hobby, it is considered a very competitive business, and thus it should be treated as a business. Second, obtain good investment management or trading software, as it is very important nowadays to have access to a fast internet connection and efficient investment management software. Third, get sufficient knowledge about the basic accountancy concepts, annual reports and stock market history. Fourth, learn about money management, where understanding the allocation of assets is very essential. Fifth, Subscribe in a good investment service. Finally, getting involved in more practices is considered a good start; this can be achieved by starting with paper trading.
