When faced with the idea of the stock market, many people are a little uncertain about getting involved. The ambiguity can make anyone a little scared, but the stock market doesn’t have to be shrouded in a haze of mystery. We’ve compiled a list of the top five proven strategies that will help even the most doubtful person become a trader in no time.
1. Make an Investment Plan
One of the best strategies is to treat trading as a business and come up with an investment plan. If you don’t have a plan of attack, you’ll flounder trying to keep up with the market. Instead, take some time before investing to familiarize yourself with how trading works and with the companies/industries that have stocks you’re interested in trading. Once you’ve educated yourself, you’ll be ready to put your plan into action.
2. Only Invest Cash You Won’t Need for Five Years
The stock market is sometimes viewed as get-rich-quick scheme, but that isn’t usually the case for most investors. You’ll need to practice patience and only invest money that you won’t need to touch for the next five years. By giving yourself this buffer, you’ll be more likely to optimize your gains by not withdrawing it prematurely. The stock market is a long-term game, so never risk money that you should be using on something else.
3. Use Passive Investing
You should strive to have a diversified portfolio. The reason for this is to minimize your inevitable losses by investing in several different stocks. If you spread out your stocks, the ones that do well will make up for any that have lost money. A passive investor only tries to match wider market gains instead of quickly buying and selling stocks in hopes of outperforming the market. By using the passive investing method, you’ll keep your costs low by avoiding fees that can hinder long-term growth.
4. Actively Trade Only 10 Percent of Your Portfolio
Your investment relies on being able to consistently make money, so if your portfolio is dependent solely on trading large stocks, you run the risk of losing everything very quickly. If you’re interested in actively trading, try to limit it to 10 percent of your total portfolio. Because the market can be volatile, you don’t want to bank on only one method of trading.
5. Trade Penny Stocks
If your goal is to steadily increase your net worth, then don’t bother chasing the big companies. Often overlooked because they don’t make a large sum of money from each trade, penny stocks are a great way for average investors to consistently make money. Remember that even small sums add up, so even though lower-priced stocks aren’t glamorous, they get the job done.
From casual investors to day traders, the stock market can be used in many ways. The above strategies will help you test the waters and see if trading is something you’re interested in pursuing. With the right strategies and a little bit of luck, you’ll find yourself making trades in no time.
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