Not All Investments are Risky: Even in the Current Economy
The stock market might be the last place that people would like to put their money right now, considering the economic weather right now. Prices are sky high, bailouts of major institutions are in the works and the common man is beyond worried. The hand wringing and ominous clouds of doom have started for many, and they are considering stashing their remaining cash under the mattress until things take a turn for the better.
That being said, there are investments that are not as risky as others, and they actually can be well worth the effort of finding them. If you are new to the stock market or even if you have traded before, it is wise to keep a few things in mind for your own financial protection. Educate yourself before undertaking any investment plan, even the least risky options do carry risks, none are zero risk. Know what your tolerance and loss cap are before proceeding. Speak to your financial planner about your budget and your projected profits for the coming fiscal year. Know what you can risk and be comfortable with losing that amount so there are no horrible surprises down the road.
Working with a broker can make your trading activity easier- they can guide you to a block of stocks that are giving fair returns for a minimum investment, which is exactly what you want to start with. Nobody dives into the stock market and makes a killing on their first trade, what you want to aim for is slow and steady, consistent performance. Stocks that blow up all of a sudden also have the potential to tank just as fast.
Brokers can also guide you to the right trade analysis software so that you can track your own stocks. Once you become proficient at tracking these trades, you can start selecting some of your own. Use the profits from positive performance stocks to re-invest, and do not use any of your own ready cash to further extend yourself in the market. Start pulling some of these profits back out of the market and putting into interest bearing accounts, while using the rest to invest in more diversified stocks and other financial products. A diversified portfolio is an absolute must, if one of your stocks trends downward, you will still have others to keep your head above water for the time being.
Do not work with a stock broker that pressures you into stocks or other tools that sound risky, no matter how unqualified you think that you are. If you just heard mention of trouble with a stock or a company and that is what you are being pushed to buy, that is a serious problem. Do not get tied into thinking that you have to work with just this broker. If the partnership is not working out for you, move on and find someone else to handle your investments.
You can find lower risk investments by reading the financial pages and logging on to financial websites. If you can understand the charts and analysis, you will have a leg up. Education is key to solid investing; so do not accept the words of a broker as law. Know a little bit about the types of trades that you would like to see made on your behalf and what kind of companies that you would like to invest in. There are some that will be solid performers no matter what the economy looks like, and there are those that are folding left and right. Keep your head up and do not be afraid to put your foot down if you feel uncomfortable with a recommendation.
The Long (Term) and Short (Term) of It
Between the two, short term trading is by far, the more risky option. Long term trading requires more careful consideration and movement, and therefore gives the trader time to reconsider or to find out more information before proceeding. Short term trading usually is quick moving and you must realize that very few people ever have more than very fleeting success in the short term trading market. Knowing this, if you still choose to proceed, do so cautiously. Be vigilant that you remain under your loss cap and know your limits at all times.
Short term trading requires that you know quite a bit of knowledge up front. You must know the stock that you are looking to trade inside and out- its trends, its volume, and its volatility. You must know what this stock has been doing prior to the present, and what it is most likely to do in the near future. If you are at all unsure about any of the aspects of the stock, then do your research before even thinking about investing at this point. Losing all of your money on one ill-planned investment block is not going to help anybody in the long run.
Look at the stock's trend. How is the stock behaving from day to day? While most short term traders will be satisfied with tracking a stock for one or two days, the more cautious trader will wait until they have compiled at least a week or two's worth of information so that they can see what the average trend looks like.
Volatility is the actual movement of the stock market; are there many moves in either direction? Is the market heading up in a large surge or plummeting downward? Or has the market flattened out and turned stagnant? Knowing this information is vital, because it could indicate whether there is a system wide trend beginning or if a positive or negative trend affects only one or two isolated stocks.
Volume simply refers to the number of buyers or sellers of a particular stock and can be indicated by the other information in most cases. Volume can be affected by small traders selling of one or two blocks of stock or larger traders selling larger amounts of their own stocks. Either way, the volume of trading will indicate whether it is a hot seller's market or a more cool, buyer's market.
Volume, volatility and trend are important aspects for choosing your short-term investment stocks, but it is important to be equally informed about the next step in the trading process. You know how to choose hopefully the right stock, now do you know how to proceed with the actual trading of it?
Within short term trading, there are several types of trading that goes on. Of them, there are some that are more common and some that are less used for the short term. Before you even begin to trade, no matter what type of trading that you choose to do, you should have an exit strategy in case your selections start heading south. Do not remain in a bad situation if there is a chance to exit, do so. If you pull out before you lose all of your money, you could always reinvest in a different stock, something you could not do if you do go belly up.
Trend trading is not often done as short term trading. It takes a long time to calculate and chart the trends of a stock and the short-term trader just does not wait around for this information. Of course, there are some moments when the short-term trader will use "trend" as a factor for choosing a stock, but that is not the most common.
Counter trend trading does lend itself most easily to short term trading. You must have some quick cash available to jump on the sudden reversals of trends in certain markets. Once these counter trends are spotted, they become fast moving, hot commodities and if you are lucky enough to jump on it fast enough, you can turn a quick profit.
Breakout trading is another short term trading strategy that requires careful market watching. The trader that uses this strategy will buy a stock as soon as it starts to move up after a period of either little or lateral movement. The opposite of a breakout trend is a "breakdown" where a similarly stagnant stock suddenly takes a turn toward the negative.
Buying stocks that had been strong when they are temporarily weak or vice versa is called "pullback trading" and can be viewed as trading that not only takes advantage of these stock's situation, but also as a method of returning a stock back to its previous levels.
Knowing all of the stock information (volume, trend and volatility) and the short term trading types (trend, counter trend, breakout and pullback) is not enough for success in the short-term market. You must understand that you still need to have solid business savvy and some good fortune. You still must stay below your financial limits, never exceed your own personal loss cap even if you are guaranteed a "sure thing". Financial experts rarely agree on anything but they do on this key fact: the most important thing to consider for short term trading success is discipline. If you have no self-discipline, find another outlet, short term trading is simply not for you.
On the other hand, long term trading takes all of the above traits and one other as well. For the long-term trader, patience can be the key to their ultimate success. Knowing which stocks are going to have a cooling off period followed by a huge upswing can be vital to their moves. They wait like a chess player for the moves to unfold before them before they pounce, snagging stocks that will double or triple in value in the fullness of time. Being able to accurately predict what these long-range trends can be will make you a very wealthy long-term trader, indeed.
Another often overlooked factor to give long term the advantage over short term trading is the actual costs of trades and losses per year. Say you are working with a broker who is (for simplicity) making a nice round, ten percent commission on every trade that you make. If you lose money on that particular trade, you are out not only that amount, but also the ten percent commission, every time. For the short-term trader who makes many trades, that can really add up quickly. The long-term trader will still pay commission, but they will pay far less in commission costs throughout the course of the year because they make far less trades within the course of the year. It is simple and straightforward, but somehow the short-term trader fails to see it. Plainly stated, the short-termer is paying to lose his money. Does that sound financially responsible to you?
Understand that the stock market is changing every day and that trading stocks can be very risky, as well as having the potential to be very rewarding and very interesting. Do not allow yourself to get caught up in the go, go world and do something you are not ready to do, nor financially capable of handling. The money that you invest in the market can be gone in the click of a computer mouse, and the number of businesses that are failing at this moment is frightening. Remain well under you limit and never risk anything you could not bear to lose.
In the end, you are the person that you have to face in the mirror everyday. Do you want to look yourself in the eye and know that you have blown your life's savings on a stock that failed to perform because you did not do the necessary legwork before hand? Of course not. Look before you leap- do your research and know what the trends are for the stock you are buying and what the indicators say for its future. It cannot be said often enough, educate yourself, track the stocks and never risk more than you can afford to lose.
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