The stock market is one of the most popular investment vehicles for different people with all kinds of unique goals of investments. There are several crucial elements required for successful trading on the stock market, including knowing your goals and objectives, devising strategies as well as being an educated trader. No investment strategy is foolproof, however, with the help of these useful tips, you should be more successful with your stock market trading.
1. Develop a trading strategy.
Prior to trading on a single stock, you should make sure that you have developed a strategy and stick with it. If you always switch your strategies and objectives, you will not be successful as you would if you choose to stick with one strategy that works for you. To figure out the proper strategy, you need to evaluate your objectives. For instance, are you looking for long term investments of steady growth or just want big gains in short time? Can you afford some risks or do you want to play with the stocks safe? Warren Buffett has a book “Think Like Warren Buffett” talking about his successful value-based strategy and you can read and employ it as well.
2. Be smart about buying and selling.
Once you have set the strategy and objective in your mind, you should stick with them with every decision on stock investment. You can follow some latest hot tips or purchase penny stocks, but you can’t hope you can simply get rich quickly depending on that. Instead, you need to do research on each of your opportunity and decide whether you believe in the company’s potential for upward mobility and if the stock fits into your overall strategy. It becomes a little tricky when comes to selling. You should understand that there is no surefire ways to know when to sell but there do exist some general rules of thumb. You should not set rigid limits to all your stocks, such as “I will sell it when it doubles in value.” If you do this, you might actually miss out on even higher returns. Instead, you need to evaluate each stock individually and don’t generalize them. Don’t be afraid of small fluctuations in the stock prices. If you plan to hold the stock for a long term and believe in it, ride out these dips and bumps. On another hand, if the stock price continues to plummet, you should seriously assess the stock and determine when to cut your losses.
3. Diversify your portfolio.
One important rule in being successful in the stock market is you should diversify your portfolio. Don’t put all your eggs into one basket and you should have a variety of stocks from different companies in various industries or even in foreign stock market. The idea is simple—if some of the stocks plummet, others may still be fine or even go higher. For instance, if you hold a stock in print media company and one in online media company, you will be able to protect yourself from big losses, because when print ad sales go down, the Internet ad sales keep strong, and you may lose some capitals with the print media company, however you gain more money with the online media company.
*Image source: http://stocklook.wordpress.com/2010/08/