Believe it or not, mastering stock trading isn’t hard. It requires a lot of time and effort, but it’s not hard at all. Think about it. Before they made their first trade, what did the experts have that you don’t have now? In fact, it’s a lot easier for you to make money now because you have the combined knowledge of all those who came before you right at your fingertips. Now that you know that success is quite achievable, here are a few of our favorite tips and tricks to get you where you need to go.
Focus on the Long Game
Many beginners choose to make their money dealing in attractive stocks that seem to be making constant progress. There’s nothing wrong with that, of course, but why settle for a mediocre strategy? One of Warren Buffett’s reasons for success is that he invests in companies, not in stocks. Meaning, he puts his money in healthy companies with lots of growth potential. That way, he can rise above the daily fluctuations of the market and trust in his investment’s long-term success. To do that, you need to do your research on an industry and its companies. Look at performance indices, charts, news, and stock value. Undervalued stocks make great investments when the market starts realizing their true actual value.
Strategize Mindfully
The reason there are so many trading strategies is that there is no one-size-fits-all method of investing. If you start your trading journey using a strategy that doesn’t match your lifestyle, you’ll only be setting yourself up for failure. If you don’t have the time of day to follow your stocks, don’t aim to make money based on daily fluctuations. If you don’t have enough disposable income for a risky trade, don’t take a chance on that sexy start-up just yet. All of this is to say, be mindful of your wants, needs, and resources when planning your next move.
Keep an Eye on the IV
When it comes to the stock market, volatility is inevitable, but it can be reduced. All you’ve got to do is watch where you invest. Thanks to a simple little indicator called implied volatility, you can see whether or not your prospect stock is stable enough. Through noting the IV Rank of a stock and the industry average, you can determine its suitability. Needless to say, the lower a stock ranks compared to the industry, the more stable it is. If you’re looking to avoid volatility, opt for the low ranks. If you’re aiming to sell at a premium and win big, sell the higher-ranking stocks.
Cut your Losses
One thing you will learn with experience is when to jump ship. That’s the key to losing in stocks. Before you buy a stock, set a loss limit for yourself, beyond which you won’t go. In doing so, you won’t be leaving a trade open-ended. After you buy, you should find a selling order called ‘limit order’. It works by using your specified value as a minimum and selling at the best position after that. Let’s say, you’ve bought XYZ at $50.00 a share, but started losing on your investment. If you’re not willing to lose more than $2.00 per share, set a limit order at $48.00 (the set price should be a realistic estimate for it to be executed). Once you’ve set the order, your broker will find the best price available above your set limit, but it won’t execute. Once the stock reaches $48.00, the order will get executed.
Don’t Diversify Right Away
Last, but not least by far, don’t diversify when you’re first starting out. This is the opposite of what you’ve been hearing, but there is a good reason we’ve included this tip. If you’re a beginner, you most likely don’t know what you’re doing yet. Until you get the hang of the market, you’re much better off investing in one or two companies. Once you’re sure that you know how to properly analyze a company, start diversifying gradually. All the while, make sure you’re able to keep up with your investments.
Results are what we all want, and results are what you’ll get if you apply these tips. The one thing you should keep in mind is not to get too eager. Limit your profit expectations to avoid disappointment. Most experts don’t care about getting rich as much as they care about building strong portfolios. In other words, high-quality investments are a lot more important than high-profit margins. Quality investments require patience and planning rather than reckless ambition.
