Use a Stock Trading Strategy
Many people tend to dabble in stocks without first deciding on a strategy for doing so. While some see the buying and selling of stocks as no different from going to the casino and leaving everything to chance, others easily succumb to their emotions and are influenced by the herd mentality. The latter phenomenon can become a financially costly exercise when you end up buying overvalued stocks or engage in panic selling. There are also occasions when people just buy on tips or buy into stories, without making the effort to assess the reliability of the information, look at the valuation of the stock or use a technical analysis strategy. In short, they just buy the stock and hope for the best. With such practices, it is not surprising that most people end up losing money in the stock market, while only a few make money.
While there are anecdotal examples of overnight success from “lucky” stock trading, there are also even more examples of spectacular losses if things are merely left to chance. Given the above, it is better for investors to adopt a stock trading strategy or a combination of a few, rather than merely leaving everything to chance. The following are some advantages for doing so.
Firstly, it provides you with a rational approach towards the buying and selling of stocks. As each strategy is based on a certain principle that has been derived from past phenomena or track records, it increases the probability of success for your stock picks. Moreover, given that these principles are the result of logical reasoning, they can guide you to a more measured approach towards stocks.
Secondly, a stock trading strategy can also highlight certain risks, which you might have overlooked. Hence, you can adopt some measures to mitigate your risk exposure.
Thirdly, contrary to popular perceptions, stock trading is not a “get-rich-quick” scheme. Instead, it is the result of many months of continuous research and testing, as well as implementing a stock trading strategy in a cool-headed and disciplined manner. A good trading strategy allows the investor to make steady profits from safe trades one step at a time.
There are different kinds of stock trading strategies. For a start, pick one or two strategies and learn all you can about them. Find the strategy that you like best and stick with it. After a period of time, you might be pleasantly surprised at the outcome of your rational and disciplined approach. You'll then have to know exactly what type of stocks you want to buy.
At WallStreetWindow.com we advocate using a technical analysis strategy that looks at the price action of a stock and uses charts to clearly define risk and reward parameters combined with a fundamental strategy that looks for growth stocks priced cheaply.