Stock market can be a hostile place for a beginner but armed with a few golden rules and some technical know how of the various trading techniques, beginners too can take the plunge.
Most people who want to invest in the stock market are confused as to where to put their hard earned money. The risk element that is synonymous with stock trading makes investors very wary of the stock market and usually leads them to make grave mistakes while buying stocks. Given below are some golden rules to follow if you plan to invest in stocks:
1. Never buy stocks of unlisted companies even if you find the stock quotes very lucrative. The number of companies listed in the stock market would be much lesser than the ones that actually exist but safe stock trading is best practiced if confined to buying shares of only listed companies. Stock exchange all over the world does not allow stock trading of unlisted shares. Even registered stock traders are not allowed to carry out stock trading in unlisted stocks. Thus dealing in unlisted stocks would not guarantee protection from the stock market authorities. Moreover, you would have to do the trading yourself since legitimate brokers would not handle such transactions. To add to all these woes, share prices of unlisted companies are difficult to asses without the aid of stock exchange quotations. Now, you might wonder as to how to determine which are the listed shares? It is simple. All the shares of companies that are listed in daily newspapers and websites are listed shares. Unlisted shares would not have their stock quotes.
2. If you are looking forward to good investments in the stock market, refrain from buying inactive shares. Active shares have daily transactions while inactive shares see transactions very rarely. Book definition defines inactive shares as a share that has less than two transactions a month or none at all. Most of the times inactive shares belong to unsuccessful companies with no future prospects. Nobody would be buying such stocks in the stock market and the shares become inactive. The shareholders of this company would be trying to get rid of their stock by offering them at throw away prices. Do not get lured by these stock quotes since they are erroneous. Regular monitoring of the stock market would give you the best stocks to buy now. Daily newspapers would quote prices of active shares and use this to come up with a list of cheap stocks to buy right now or top 10 stocks to buy now etc. Inexperienced investors should beware of traders stock trading inactive shares. Investing in these would be disastrous. Always remember that all the shares you buy whether company stocks, high divided stocks, gold stocks, energy stocks, penny stocks or solar stocks, would have to be sold one day and hence buy the ones that would give you maximum profit. Recent additions of energy stocks to the stock market has given investors more chance to diversify their stock portfolio.
3. Try and invest in companies which are not closely held. Stocks of closely held companies are less active compared to widely held ones. The share prices of these companies are very volatile, they rise quickly but fall even faster. Thus even before you realize and get prepared to sell your stocks in a closely held company, the share prices would have hit rock bottom. Such shares are best in the hands of a skilled and expert trader with years of experience of being alert and acting quick.
Stock Market Trades
The stock market is a place of vigorous trading of shares of companies, energy, gold, commodities etc. Planning to invest in the stock market requires the know how of the most common types of stock trading that goes on here. Stock trading is classified into three types:
• Day trading – day trading is the most intense stock market trading technique. Traders have to monitor stock market closely and come up with lists of best stocks to by now. They carry out dozens of trades everyday. They mostly are adept at short term trades and avoid the risks associated with long term buying of stocks and holding. Day trading is by far the most exciting trade for risk takers and use analysis of the market prices for trading decisions.
• Swing trading – in this type of stock trading, traders monitor the market for weeks and months prior to trading. Technical analysis and fundamental monitoring of the market is very crucial in swing trading. Traders practicing this type of trades usually stick to a certain industry or sector so that they can become experts of the movement of stocks in this sector. Swing trading gives the traders more time to analyze the financial reports of the company and even research industry forecasts. Swing trading is best for people who want to invest in stocks but do not want it as a full time job.
• Position trading – traders who take to this type of trading are full time investors. They like to be involved in each and every transaction of their shares. They use long term strategy for their stock market trades. Position traders ensure that the technical analysis and the fundamentals are all in place but tend to hold on to the stocks for long time waiting for a change in the market trend.
All these stock market trades are practiced in all the stock markets around the globe. Stock traders have to keep up with the stock market trends and also keep abreast of all news. The share prices are subject to change since the market depends on the government actions, economic forecasts, world events and changes in oil prices. The situations that can create a change in the price of the stock are very important from the point of view of the stock trader and he keeps ahead of times to profit.
Stock investments are interesting and challenging. They should not constitute your only investment portfolio but a portion only. If you have invested a large portion in stocks, then buying stocks of different companies would help you diversify and reduce risks.