Summary

Smart stock traders are able to tolerate risks and know their own personal financial limits. They carefully research stocks they are considering trading, looking for shifts and changes in the trading price and understand that there are cycles to any financial investment.

Guideline #4 – Buy and Sell Based on Knowledge, Not Emotion

For most of the public, the whims of the stock market are baffling and as a result, they buy and sell based on emotion. If the news is bad on the television, the next day the public are rushing to sell. If the news is good, they are rushing to buy. A smart trader knows how to not let their emotions determine their buys and sells and instead they methodically research the stocks they trade before making a move. This does not mean that they do not, of course, take advantage of the rallies that result from the emotional buying and selling of the public

Guideline #3 – Understand That Everything Has a Cycle

The natural way of financial markets is that everything has a cycle and there are ups and downs along the way. Everything has a high and everything has a low and none of those highs or lows lasts forever.

As a trader, you must be willing and able to set limits on the high points you are looking for when taking profits and the low points when you are taking losses. Everyone has both profits and losses. They key is being able to recognize your own limits when it comes to financial risk taking

Guideline #2 – Know the Difference Between Investing and Trading

Investors buy stocks for the long term. They usually intend to hold on to stocks for several years and maybe even decades before they sell them or pass them on to the next generation. As a result, investors do not usually worry about minor shifts in the price of a stock over the short term.

Traders are just the opposite. They take advantage of those short term shifts to make a profit. If a stock shifts within a matter of a day or even a few hours, the trader will spot that shift beginning to happen and buy and sell based on that shift and take their profits on the fly. By watching specific stocks, they can begin to sight small shifts just as they begin and place themselves in a position to take advantage of the shift.

Guideline #1 – Understand the Risks

The simple fact is, if you cannot afford the risk, then you probably cannot afford to play the game. Day trading in the stock market is not for the faint of heart or the risk-adverse. While it is not recommended that day trading be launched as a casual game, those who are not willing to invest the time and effort into researching potential stocks to trade are more likely to also be the biggest losers in the stock trading game

4 Important Guidelines in Stock Trading and Investing

With all of the shifts and changes in the stock market, stock trading investing has become a popular method for individuals who are able and willing to take the risks and enjoy the excitement of day trading. Before delving into this volatile and exciting way of earning money and increasing wealth, it is important to understand some basic important guidelines

Efficient Market Hypothesis

The efficient market hypothesis is an argument used in favor of the buy and hold strategy, but it is not the only support for the buy and hold technique. In fact, many of the most outspoken advocates of buy and hold reject the efficient market hypothesis (or EMH).

Nonetheless, the EMH holds that the market price for a stock already reflects all known information about the company, market and competition. The prices change very quickly as new information is added, discovered or created, and therefore, there is no point trying to outdo the market.

This philosophy has proven to have its problems, and is not accepted without reservation because of anomalies and situations in which it proves incorrect; it is nonetheless

Defining Buy and Hold

Buy and hold is a strategy designed for the long term. The philosophy that underlies this strategy is that the market will eventually yield good returns, despite volatility that gives very low returns or very high returns at any particular moment.

The buy and hold philosophy is in direct opposition to the Market Timing philosophy that advocates quick movement in and out of the market, encouraging investors to buy low and sell high.

The buy and hold philosophy, as is suggested by the name, advocates choosing particular stocks or mutual funds based on solid research, and then simply holding onto them for many years

No Magic Bullet

Despite this desire for the single best investment strategy, investors generally come to realize that there is not single strategy that works all of the time for everyone.

There are many different kinds of strategies for choosing stock and for choosing mutual fund companies in which to invest. Some involve analyzing the companies and choosing the ones with the best possible management philosophy and business plan, while others completely ignore the company and instead focus on the past history of the stock price with no regard to management or philosophy.

Some strategies involve quick stock turn around, and others take the long-term approach.

Nonetheless, the most commonly recommended and most often touted stock investment strategy is the buy and hold strategy

What Is Wall Street's Preferred Stock Investment Strategy

Many are searching for the stock investment strategy that the experts use. They sometimes assume that if they could discover the best strategy used most often by Wall Street investors or big investing houses that they will be successful in the market.

Support and Resistance

Support and resistance are two important concepts in technical investing. Support means the level where the technician expects that a stock will generally start to increase afte a decline, while resistance is decreasing after an increase

Short Term Strategy

As some find to their chagrin, technical analysis is most effective as a short term, not for a long-term buy and hold strategy. The technician is probably a very active trader, watching constantly for price fluctuations and trying to capitalize on them.

Analysts will go either long or short on stock, depending on whether their data says the price is likely to go up or if it is likely to go down.

If the strategy is ineffective in a certain instance, there is not a lot of hand wringing or discussion on the part of a technician. They will set a stop loss point in order to be certain that their losses are limited because of a stop loss order.

As opposed to a fundamental analyst, who may need a high degree of patients while it waits for market corrections, the technical analyst getting stock investing advice from past trends must be agile in the market and understand how a person can enter or leave the position in the market speedily

Factoring in External Events

The technicians believe that markets are efficient, and therefore have absorbed them in to the price of their stock. They are certain that prices move according to trends, and they believe that history will repeat itself.

Unlike other strategies, technical analysis is stock investing advice that is not based on the overall or underlying value of a particular company. Many technicians make money investing in companies about which they know very little.

They are not concerned with the company’s management team or leadership, they could care less about the business model of a firm or the competition they are challenging. All they consider is trends as shown by past stock performance

Outside Events

The underlying philosophy for a technician or technical analyst is that all every individual factor that does affect stock prices or the market for stocks will very quickly be apparent in the price of stocks.

These effects can be up or down, but the effects of the external events will, in fact, affect the price of stocks almost immediately.

Some external factors that can affect stock price are political events, natural disasters, and many psychological factors.

Stock Investing Advice Based on Technical Analysis Strategies

Often stock investing advice is based on technical analysis. This form of market analysis is a different approach from fundamental analysis, which is the common type of market analysis.

The Technical Approach

The technical approach to stock investing advice is taken by “chartists” or technicians, who make stock selections looking at detailed charts that are created by analyzing the activity of the market in the past, including stock prices and the volume traded.

They use this information of past prices and stock movement, as well as other indicators, to make an educated guess about where the cost of stock will go in the future.

All Ages

Adults and older children can play together and learn about the stock market together, as well as learn about commodities, franchises, and options.

Many adult investors who are specifically trying to pick up skills that will help them in their regular investing prefer the computer modules that simulate the actual stock market, however.

There are games from CNBC SST that are used in a classroom setting, but can just as easily be used by individuals. Wall Street Survivor, Investopedia Stock Simulator, and Fantasy Stock Market are great for individual investors.

Board Games

While online and computer aided stock market games often mirror the real stock market in order to give people the actual feel of investing in the current market, there are some board games that aim to help the players learn to invest in stock generally, rather than teaching them about the current market.

Newer versions of stock market board games are similar to “Stock Rush;” a board game that is simple to play and avoids complicated tables and charts and tracking in favor of simply giving the idea of what it is like to invest in the stock market generally.

The game has all kind of action, and offers exciting game play, captivating the players while teaching them how the stock market works, with them being nearly unaware that they are learning.

Non-Threatening Reality

This non-threatening version of reality allows players in the game to see what happens if they take risks in investments that they would in other circumstances (ie: dealing with their own money) not try for fear of the consequences.

With the stock instructional games, players can learn to invest in stock by following a pattern or by taking risks and are able to see what the actual consequences are. The rules and objective in the games allow the first time or novice investor to understand a structure and plan and gives them guidelines in which to work.

The online element allows an ease of use not available in the paper versions of investment games, since a computer aided game that helps people learn to invest in stocks can automatically follow the selected stocks in which the investor has placed his or her money, and can automatically figure profits and losses, etc.

Sales of stock are also easily calculated and recorded. The computer also does all record keeping and profit or loss tracking. While this may diminish the experience of the user, it also makes the games more realistic and reasonable to play

Learn to Invest in Stock Using Instructional Games

One good way to learn to invest in stock is to use stock instructional games. These games are developed to allow potential investors the opportunity to invest in stocks without taking the risk associated with novice players putting real money into the market.

These games are not only valuable to the beginning investor, however. Otheres with more experience still want the advantages of “paper trading,” or practice trading, before they commit money to a new strategy or new company.

Currently, these games are often available in on-line versions, which increases their speed and usefulness considerably

Determine Your Acceptable Losses

Stop losses are similar to sell stops but are aimed in the other direction. Instead of attaching a sell order to a stock on the basis of its rise in value, stop losses are sell orders placed on stocks that fall below a certain price. By utilizing stop loss orders, risk takers can decide beforehand exactly how much they are willing and able to lose so that they need not worry about the pitfalls of euphoria clouding their judgment.

Take Goal-oriented Risks

Maintaining goal-oriented risks is one of the primary ways risk takers can shore up their portfolios to avoid unexpected losses. Using sell stops is one of the most efficient ways to achieve this goal. Sell stops are sell orders attached to particular stocks, which upon reaching a predetermined price are immediately sold. This keeps risk takers from falling prey to the sort of euphoria that would tempt them to hold onto the stock for too long.

Avoid the Pitfalls of Euphoria

It is an all too common situation for risk takers to find themselves in the midst of a whirlwind of profits only the find that in a blink they have lost it all because they were too exhilarated by the success to get out while they were ahead. Much of the investing and stock market advice usually given to risk takers fails to include ways in which to do this. This is because, at least partially, most risk takers are too busy operating on gut instincts and quickly reacting to market fluctuations to worry about too much else. However, there are specific ways in which high risk investing and stock market trading can maintain certain safeguards.

Diversify, Diversify, Diversify

While this is not earth shattering or surprising advice, it is absolutely necessary in order to create an all-weather portfolio that can stand the tests of a volatile market. While risk takers usually try to avoid safety nets and opt for the far more exciting and profitable company of high risk returns, they will find that diversifying their portfolio cannot eliminate risk altogether. Rather, it is a matter of ratio. The extent to which they diversify their stock will be the extent to which rapid market fluctuations will not affect their total returns.

Investing and Stock Market Advice for Risk Takers

Most of the investing and stock market advice aimed at risk takers consists of four basic elements. If you are comfortable taking risks in trading, then these four basic pieces of advice should help protect your portfolio against substantial losses by providing you with methods that can counterbalance the risks taken. They are to diversify, avoid the pitfalls of euphoria, only take goal-oriented risks and determine acceptable losses at the outset

What Stocks to Invest in for Quick Returns

Investing Quickly, Returning Quickly

Mergers, corporate restructuring and bankruptcy can each produce a temporary inflation or deflation of the value of a company’s stock while the market attempts to adjust too and evaluate the new developments. Such temporary fluctuations require quick reactions because the resulting storm they generate will not last long. At the same time, these swift pricing fluctuations can also provide quick returns for investors for the very same reason. The best stocks to invest in for quick returns are, as a general rule, those stocks that force the investor to react quickly or not at all

Probability Based Investing

Probability based stock trading and investment strategies are, like non-directional strategies, primarily non-linear investment patterns. They are designed to produce profitable returns under a wide range of conditions in the market. To employ the most common of layman’s terms reserved for the stock trading world, these strategies rely primarily on a diversified portfolio whose stability is based on maintaining both long and short positions within a diverse array of securities

Portable Alpha

This investing strategy does little in the way of stock trading within closed markets. Rather, it involves investing in areas that have little to no correlation with the market so that the investor can see returns regardless of market conditions

Non-Directional Investing

Non-Directional investors attempt to take advantage of market inefficiencies and stock pricing differences. Instead of exclusively depending on the market to increase the value of their best guessed preferred stocks over time, these investors rely on the fact that at any given time, there are stocks available that are over priced and those that are under priced. Two examples of this strategy include event driven investing and fixed income investing. Event driven investing is usually incited by corporate upheavals, declarations of bankruptcy or mergers. Each of these events cause dramatic fluctuations in the prices of a given corporation’s securities which the investor seeks to take advantage of as quickly as possible. Fixed income investing, on the other hand, yields a yearly fixed return, usually in the form of bonds

Directional Investing

Directional investing is employed by those who believe they will be able to accurately predict the movement of the price on a security. If they believe that the price of a stock is about to rise, they buy it, and if the price is about to fall, they sell. Market timers, equity investors and trend investors are all prime examples of this type of strategy. Each of them depends in some way on the market causing their chosen securities to rise in value. Such stock trading and investing strategies are the most susceptible to the volatility of the market. An increase in the volatility of the market can, in fact, produce a temporary directionless market rendering the predictions of these investors ineffectual at best

A Survey of Stock Trading and Investing Strategies

The purpose of employing stock trading and investing strategies is either an attempt to take advantage of fluctuating market conditions or merely to avoid them altogether. The fact that any strategy is susceptible to the effects of large market swings inspires investors to seek strategies that not only yield profits, but that also offer some form of protection from a volatile market

Day-Trading Versus Long-Term Investing

Part of identifying good stocks to invest in is figuring out which of those stocks should serve as long-term investments and which of those are more volatile and shouldn‘t be considered long-term. All too often, investors become enamored with the money they are making with volatile day-trading and begin to view their long-term investments with impatience. These investors often find that they cannot cultivate the patience to watch their long-term investments start to fall and instead succumb to panic and sell their stocks prematurely. If you are this type, you may want to carefully divide your investment budget into two parts. Allot yourself a portion of your investments that you can alter frequently to satisfy that urge to react to the market, but leave the rest alone in long-term holdings

Know Your Company

One of the best lessons any investor can learn in looking for good stocks to invest in is that you should always have at least a fair understanding of the internal workings of the company whose stock you own. All of the protein dieters in the world won’t save a beef grower and distributor if the company is poorly managed. Moreover, if the management is unable to sufficiently organize the company to take advantage of trends like the one mentioned above, then their stock will achieve little upward momentum.

Mark Your Trends

While there is no simple snapshot outlining the complicated web of influences that can affect the value of your shares, there are ways to identify and track some of the more direct influences such as social or economic trends. An example of this might be the rise in popularity of protein diets in the late 1990’s. An investor with foresight might have seen this as a precursor to beef or chicken companies massively increasing sales and, as a result, increasing the value of their shares. Marking such trends and attempting to foresee their effects is a necessary skill to cultivate in order to identify good stocks to invest in

Know Your Assets

Because stocks merely represent the claims that an investor has on a company’s assets, you should know what external conditions might affect the value of those particular assets. These external conditions refer to factors occurring outside the direct control of the company or its management structure. Increasing cases of swine flu, for instance, had a detrimental affect on the value of stock for companies whose primary source of income is pork distribution. In this regard, identifying good stocks to invest in requires keeping an ear to the ground for relevant information that could directly affect a company’s assets

Identifying Good Stocks To Invest In - Beginners' Tactics

Identifying good stocks to invest in is a matter of tracking the relevant external conditions, trends and internal workings of the company or companies in question. Seen in concert, each of these factors will have a decisive effect on the value of any given company’s stock. Moreover, as an inexperienced investor, you should familiarize yourself with the differences between day-trading and long-term investing

What are bonds and how do they differ from stocks

A bond is a certificate of debt issued by a government or corporation guaranteeing payment of the original investment plus interest by a specified future date. Basically one is making a loan to the government or corporation and gets paid a sum of money in the future for letting the government or corporation borrow the money. Bonds are one way the government raises money besides taxes

What makes stock prices go up and down

There are many reasons: how much profit or loss a company has, the time of year, good or bad publicity about the company, how the economy is doing in general, etc

What are the advantages of owning stock

One is that it allows the stock owner to share in the profits of a company. These profits come in the form of dividends, which are allocated according to how much stock one holds in the company. Of course one of the disadvantages is that one can lose money if a stock's price goes down

How does one get to own stock

Usually stock is obtained through a stock broker. Let's say you wish to own a piece of Toys R Us or Coca-Cola. You would call a stock broker and he would tell you how much a share in the company would be. He would then place an order for the stock for you. When the stock is purchased, the broker would keep a stock certificate that shows that you are the legal owner of the stock until you choose to sell it.

What does it mean to own stock

Basically it means that a stock holder has a share in the company it holds stock in. In a sense the stockholders own a piece of the company that it has stock in. Stock shares are traded, bought and sold at a stock exchange such as the New York Stock Exchange which is the best known, but by no means the only stock exchange. Stocks are a type of security, Securities are instruments giving to their legal holders rights to money or other property. Securities include stocks, bonds, notes, mortgages