Guidelines for Trading the Top Stocks Online
What does it take to make a killing in the stock market?
Trading in stocks can be one of the best ways to make your money work for you.
But choosing the best stocks to grow your wealth is a challenge.
Thankfully, with a little discipline and research, anyone can learn how to successfully trade stocks and bonds.
Keep reading to see our advice for starting out as an investor.
Tips for Trading the Best Stocks Online
Know Your Goal
If you’re just starting out investing it’s very important to decide what kind of investor you want to be. You can be an active trader, a value investor or just someone taking steps to prepare for retirement.
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Hey, we get it. Everybody loves the thought of their money making them money. It’s a great feeling to see that thousand dollars you invested double or triple in value. The important thing to remember is that there are always risks involved in potential returns.
Let’s look at a few different ways to invest.
a) Active Trading
Active trading is what most people think of when they imagine trading stocks. They try to find the best stocks for the short term. By researching different companies and using the volatility of the market they look for quick returns.
Before the advent of the internet and the various e-trading companies, it was difficult to actively trade unless you were a stockbroker. Nowadays there are hundreds of companies that allow you to quickly set up an account and begin buying and selling stocks.
There are a huge number of strategies used by active traders. It’s important to do your research before jumping in.
b) Retirement Planning
This is your basic investing strategies that anyone with a retirement account is familiar with. Much like a bank account, people set aside some money periodically to add to an account. Generally, people don’t do much of anything in a planned retirement account other than fund it and choose a mutual fund or two.
c) Value Investing
Value investing is kind of a middle ground between active trading and retirement planning. You take an active hand in selecting and purchasing stocks but do so with an eye to the long term. We traditionally refer to this type of investing as buy and hold.
Investors will select blue-chip stocks or bonds that they believe have very long-term growth prospects. Once that’s done they hold them and collect dividends, growing their money over long periods of time. These are usually some of the best stocks around, but they aren’t very high growth.
Do Your Research
If you’re reading this, we assume you want to know about active trading. It’s very important to do your research before you start throwing your money around. You should also try and decide when the best time to invest is for your situation.
Don’t go too big too fast. It’s important to get your feet under you before you start making major trades. A great way to start off is to make a trade or two a day for the first few weeks.
It allows you to get a feel for the market and figure out how much risk you’re willing to take and what kind of deals you want to look for.
We also recommend at least buffing up on the basic terminology and investment methods available. When you buy a stock you can purchase it using either a market or a limit order.
Market orders execute at whatever the market price is when you place the order. Limit orders act with more precision. They allow you to set a reasonable price to purchase a stock and activate automatically when it becomes available.
Diversify, Diversify, Diversify
In the early 2000’s the Dot Com Bubble burst. Tech companies with valuations in the hundreds of millions of dollars went bankrupt virtually overnight, destroying the holdings of thousands of investors. Even the best stocks of today can become worthless tomorrow.
We look at this as a stark reminder of why it’s important to spread your investments out to different companies in different fields. If you only invest in energy companies, or biotech companies or any hot field, you make yourself vulnerable to a general industry collapse.
By diversifying your holdings into many companies and industries, you insulate yourself from the hardships of any one group.
Any investor understands the pain of fees. Brokerages charge fees not only for purchasing or selling stock but also for information and special services. It’s very important to learn more about effective ways to reduce the fees of investing.
When you’re just starting out trading stocks you can often find a promotional offer for free or reduced trades over a certain period of time. This can be a great way to practice your strategies in small sum trades without racking up large fees.
Before you choose a brokerage, make sure to find out who offers you the most flexibility in trading combined with the lowest fees.
If you only listen to us about one thing, let it be this. Investing requires discipline. Many people hear stories about friends or family making a killing in the market and want to do it themselves. They put their hard-earned money into stocks, then panic when they start to drop or rise.
More important even than what you’re investing in is how you as an investor choose to plan and act. By disciplining yourself you prevent panic sells or emotionally induced buys. You enable yourself to look on dispassionately at a change in the market and see how that fits into your overall plan.
A common rule followed by active traders is a buy/sell percentage rule. If a stock you’ve picked goes up in value by 20% or down by 10%, sell it. This way you both lock in gains and protect yourself from larger losses.
Finding the Best Stocks
If you follow the advice we’ve given you, it should be easy to create and fund an investment account and start searching for the best stocks. Know what you want, research how to get it and follow your own rules. If you can do all these things, you’ll be a lot better off than other investors who let their emotions run their wallets.
If you would like to find out more about investing and managing your money, check out our other articles.