Top Strategies for Successful Stock Trading
Top Strategies for Successful Stock Trading
As soon as businesses starts trading on the stock market, there will be a learning curve. It will be steep as the entrepreneur may not be aware that trading stocks is different from investing in stocks. Hence, the business model should be clarified at the outset.
Investment in stocks would mean a focus on long term gains as the stocks in a company would be bought and held onto for the returns that it would eventually bring. However, ‘trading’ stocks generally entails active trading wherein stocks are bought and held onto for a very short period until the price increases and then sold and profits collected. The following tips would help in successfully trading stocks and ensuring that the business makes profit.
Have a plan in place
Whenever stock is bought, a plan has to be in place. The plan would normally consist of the reason that the stock is gong to appreciate in the short term and the amount of appreciation that it would entail. Inspite of the fact that stock trading is a short term activity, the term ‘short’ can be pretty relative ranging from a couple of hours in a day to a week or more. By ensuring that there is plan in place for each transaction, the likelihood of profit increases.
Contingency Plan
Sometimes things don’t go according to the original plan. For instances such as those, it is essential to have a contingency plan in place if the prediction goes haywire and potential losses have to be borne. The most common plan in this case would be a stop loss order so that if the price of the stock drops below a certain set benchmark, they will be automatically counted as losses and sold out. Often, traders assume that the stock prices would go up again and cancel their stop loss orders. However, things rarely turn out that way. Hence it is essential to set a benchmark below which the stocks would not be held with the trader.
Market Knowledge
The ability to make accurate predictions as to how the stock price is going to move is honed over times and it is essential to understand everything there is to understand about the market. The various factors that could affect the stocks at any point in time is to be understood. Also, information on events that could cause the stock prices to go up or down at any point in time is to be gathered from all sources and assumptions are to be made based on the same. All this requires that the trader stays upto date with the daily happenings as often the prices are very volatile and can move in either direction at the drop of a hat.
Risk Management
One of the most important skills to pick up to improve stock trading is risk management. Better decisions on how to measure the risk vs reward ration and to manage risk with the capital can be made along with better decisions about how and when to trade. A keen eye on the market along with understanding basic risk reward management would go a long way in ensuring a great trading career. These would ensure that the learning curve is well tackled and the trader knows what he is getting into and the ways to emerge unscathed on the other side.
Trading is uniquely challenging that tests even the most experienced traders and ups and downs are inevitable. However, if the trader spends time to learn skills that are necessary to learn and study the market, it can be a hugely rewarding proposition.
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