There are many reasons why people buy and sell stocks. Sometimes, individuals want to get into the market for speculative purposes. They hope that stock prices will increase over time and hopefully lead to a good return on their investment. Other times, it may be because of personal financial situations such as expecting the birth of a child or needing money for college tuition in the coming months.
Regardless of your reason for buying and selling stocks, every investor wants to ensure that they get the most out of their transactions. This is where trading strategies come in; given specific rules, traders can make more informed decisions about buying or selling various assets based on past performance trends. Although no strategy assures returns, there are simple yet effective strategies that you could use to make your trades more effectively.
1. Know when to hold and when to fold:
No matter how good a trading strategy is, there’s no guarantee that it will work in every market condition. While some strategies might excel during volatile price movements, others may perform better when the market is stable. The best way to determine whether or not your strategy can withstand current conditions is through backtesting. Backtesting involves using historical data to see if your strategy produced consistent returns under different sets of circumstances, such as high volumes and low volumes. While testing, pay attention to the number of transactions you need to declare success since this could drastically change depending on past performance trends. If results are inconsistent over a specific period, consider using a different trading strategy.
2. Have an understanding of fundamental and technical analysis:
While fundamental analysis focuses on the company itself, such as what products it offers or how well that company is doing financially, technical analysis focuses more on price movements and trends that determine whether or not you should buy or sell your assets. Fundamental analysis can help you make sound predictions about future prices. In contrast, technical analysis helps ensure that you get in and out of trades before significant changes happen to the market.
3. If buying stocks, start small:
Don’t risk all your capital when testing your strategy. Beginners should test their strategies with smaller amounts since there’s no need to stress losing money if one doesn’t work. Once you’ve gained experience and honed your skills, you can gradually increase the amount of capital that you use to trade.
4. Keep an open mind:
We’ve all heard the saying “there’s more than one way to skin a cat”, and it’s just as applicable in trading. While some investors may prefer using automated systems such as robot-advisors, others may opt for manual strategies since they work well with their risk management styles. For instance, if you plan to invest for five years or more, fees associated with Robo advisors would probably be less costly than investments made via mutual funds or ETFs due to potential commissions that manual trades incur. Every strategy has its benefits and detriments, so keeping an open mind is best to find what works for you.
5. Trade within your comfort zone:
If you’re starting, it’s understandable that there would be some hesitation regarding trading. However, suppose one of your goals is to make money investing in the stock market. In that case, there are ways around any feelings of doubt you may have – joining a community of investors or using automated systems such as robot-advisors are two examples. There are also plenty of books and online courses that give helpful guidelines on trading stocks; knowledge is power, after all!
Bottom Line
Practising trading is indeed an excellent way to learn the ins and outs of markets. However, practising trading doesn’t ensure that you’ll be successful when you start trading real money. That’s when emotions come into play. Successful practice trading does, however, provide a trader with confidence in their program if it generates good results in a practice environment. It’s less essential to choose a system than it is to have the ability to execute trades without second-guessing or doubting yourself. Confidence is key!
