5 Tips For Stock Market Trading

Whether you’re a seasoned pro or new to the stock market, there’s always something new to learn. Stock market trading involves skill and discipline. It’s easy during rising market times. During those periods, a monkey picking stocks with darts could make money. During the tough bear markets; you’ll see the difference between the knowledgeable investor and dart-throwing amateurs.

1. Diversify your stock. Everyone wants to jump on the bandwagon when a specific sector rises skyward but avoid the temptation. Keep your stock diversified between several sectors. What goes up must come down according to Newton’s Law of Gravity and the same holds true for stocks. During the 1998 and 1999, everyone was hot to buy skyrocketing tech stocks. The public paid huge prices for IPO’s of dot-com stocks after the bubble burst in March of 2000, the stocks plummeted. People that had portfolios of just tech stocks went from millionaires to thousandaires within a few months. A smaller, but similar loss occurred for those heavily invested in the financial sector (e.g credit cards companies and banks) in 2009.

2. Know the fundamentals. You can use the dot-net as a prime example of people buying without investigating the company itself. Thousands of shares on new issue stock, IPOs, sold in the hundreds of dollars for companies whose total value was less than $3,000.

3. Take a profit. If you want to gamble some money with a fast growing sector, don’t forget to cash in your chips occasionally. When your stock portfolio more than doubles, sell half, recoup your investment and let the rest ride. If people did that in the 1990’s most would have seen huge profits. One man turned $10,000 into a half million, only to watch it drop back to less than $10,000. Had he sold along the way, he would never have risen to that height but would have taken a modest $100,000 of profit along the way and never lost half of his original investment.

4. Avoid stock advice from unknown suppliers. Offices across America received mysterious faxes in the middle of the night offer hot stock tips. These often came from people that bought penny stocks and hyped the stock via the fax. The idea was to stir interest in a useless company, increase the price of the stock and then they’d sell their shares, leaving the new investors to ride the rocky road to loss in the stock market.

5. Know the company. Investigate the company’s management, spending and products. Some of the best portfolio managers for specialty funds try the products for the stocks they sell. If it’s stock in a restaurant chain, they eat there. If the stock is for a company that makes a new type of cleaning product, they clean house. When you know the product’s good, know they run a tight ship and have good management, the potential for a bright future increases.

No matter how well you plan, sometimes the market drops. There are methods of making money even in a bear market but for those that don’t want to spend all their time involved reading and planning, diversification is the key. Asset allocation is the key to success for those people. Keep a portion of your money in the stock market and the rest in bonds and fixed income products. The longer you have before you use the money, the more you can put into stocks.

 

2 Responses to '5 Tips For Stock Market Trading'

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   Hartill32

   3 Apr 10 at 8:12 am

    

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