The Stock Market Opportunity
Trading stocks can be a great opportunity for meeting our financial needs and establishing a store house that can be passed from generation to generation. I also might add that passing your knowledge to each generation is key to changing your family income. However, as rewarding as trading stocks may be, there is also a downside risk.
There are several options available to us to grow our financial base over the long term; however, most are paying a very low rate of interest at this time. If you have a low risk tolerance then one of those options may be best for you.
Those of us who have a greater tolerance to risk and have a desire to trade in the stock market, should still consider some long term investments such as Roth IRA’s, traditional IRA’s, mutual funds, money market funds or the like to diversify our financial plan.
Here are a few key things that I have learned over a period of time can help you become a savvy investor. These are simple yet very important to success as a trader in the market.
Let’s start with some things not to do first.
1. Don’t place all your eggs in one basket
a. Diversify as I mentioned above.
b. Never invest any money that you need for meeting your family needs.
2. Never trade on your emotions
a. I can tell you that once you make the decision to trade, excitement will set in and entice you to trade before the opportunity is right. You must be patient.
3. Never trade a stock you are not familiar with.
a. You should take time to gather information concerning any stock before you invest. Research any news articles (especially news that is negative) that may have been published within the last year.1. i.e. possible bankruptcy or reverse splits that are pending, etc.
b. I will watch a company for three months before I invest in them.
4. Never trade a stock with low volume.
a. Liquidity is essential to assure that your trades will be accepted at the price you want.
b. I consider a daily trading volume of one million shares to be sufficient.
5. Never buy when the stock price is trending downward.
a. Always wait until there is proof that the trend has changed and has started upward.
On the positive side, let’s take a look at some things to help you become prepared for trading in the stock market.
1. Set up an account with a reputable broker.
a. There are several online brokerage firms to choose from. However I prefer one that has a long track record of stability.
2. Educate yourself (there is no substitution for this)
a. Knowledge tends to remove much of the risk that is involved with trading on the open market.
b. Find someone who has been trading stocks for a period of time (and has been successful) to mentor you.
c. Study market trends, charts, etc to develop insight that will lead to profits.
3. Approach trading patiently and very cautiously
a. Watch and chart any stock you may consider buying into at least 3 months prior to investing.
b. Wait for the stock that you have considered for a period of time and catch a correction before entering the market.
c. It is not unusual to be out of the market for several days waiting for an opportunity
4. Establish guidelines
a. Guidelines for buying and selling are vital to your success.
b. Stick to those guidelines
5. Making positive trades
a. Trading often when profits are made is important to growing your net worth.
b. Also provides ample opportunities for buy back at a lower stock price than your selling price.
From my perspective, these thoughts are just a small portion of the knowledge you need to invest wisely. Nothing compares to educating one’s self in any endeavor and it proves true here also. With proper education, knowledge and discipline, I firmly believe you can manage your own money wisely and with great success.