Step By Step Guide To Stock Investing
Unless you've been hiding under a rock, you probably already know that the Dow Jones has been setting all sorts of records in the past few years. In fact the Dow Jones' industrial average has set more records in 2014 than in the most previous years. This is a great time to invest in stocks. The problem is you don’t want to be the fool who invest on the top. You know exactly what I’m talking about.
You don’t want to be the guy who gets in right before the crash. Unfortunately, many people invest automatically through mutual funds and 401(k) programs. They basically get lock in and once the market crashes, they are stock with an investment that was worth less than the money they originally invested. Many people found this out the hard way right after the 2008 stock market crash. The good news is you never really loss in stocks if you don’t sell. As long as you stick to your guns and keep the stocks that you bought during the high point of the market, if you wait long enough, you will come out ahead.
If you need proof, just compare the value of stocks now with the values of stocks previously 2008. People who did not panic and liquidate their holdings are worth the same amount of dollars now than pre-2008 crash. With that said, getting into stock market investing is not as simple as you think.
Setting aside money, opening an online trading account, and making trades are the easy part. The hard part is coming up with a viable strategy that ensures that you are sure that you can actually stand an even chance of making money with stocks. Keep the following steps in mind to help you get in to stock investing.
Table of Contents
- 1. Determine the Amount of Money You Are Willing To Lose
- 2. Look For Volatile Stocks Space
- 3. Profitable Stock Investing Is All About Momentum
- Top Disadvantage: Trading Fees
1. Determine the Amount of Money You Are Willing To Lose
A lot of people think that when they invest to stock on the stock market that they are going to automatically make money. These are precisely the people that loss their shares whenever there are stock market crash. That is the wrong kind of mentality. Getting into stocks you have to ask yourself "how much money am I prepared to lose?" that I am prepared to kiss goodbye? In other words, what kind of money am I willing to let go.
You have to remember that stock market investing is all about chasing after risks. It’s not about running away from risks. People who lose money run away from risk. People who make money run after risks. Why is this? The higher the risks, the higher the return. That is how you make money with stocks. You don’t make money shooting for "safe stocks". Why? Everybody in this dog is investing in safe stocks. That is why safe stocks tend to trade sideways. Everybody is so weighted in this "safe stocks" they don’t really go up.
If you truly want to make money with stocks, you look for risky stocks. These are stocks that are very volatile, they can go up 10% one day, and go down 10% the other day. That’s where the fun is. That’s where the action is. So you have to be clear as to what kind of money are you willing to take risks with.
2. Look For Volatile Stocks Space
As mentioned above, if you’re going to park, your hard earned money in “safe stocks" your investment is probably beat inflation by much. Sure, if inflation goes 4% year over a year, your investment might go up at least 6%. Nice, you make 2%, big deal.
If you really want to make money with a stock market, you need to invest in stocks that have a high level of volatility. This means that the stock has a lot of traders and goes up high percentage and could go down a high percentage. It may seem logical to focus on stocks that go up but actually it’s a better idea to find stocks that tend to crash, but then to spike up as well. Why? Your strategy should be to catch those stocks while they are shooting downwards so that when they spike back up, and you lock in, you lock in a gain.
The golden rule in risky stock rating is to make your money when you buy in. dumb traders and people who don’t know what they are doing look at the stock market from the other perspective. They make money when they sell. No. if you do it that way, it only takes one market crash to wipe you out. the smart way to make the game is to make your money when you buy in. this is why you look for highly volatile stocks through several zigzag patterns when they crash but there is a long term trend going up. The good news is these stocks can be found everywhere.
All you need to do is buy the right kind of trend forecasting software. These are available all over the internet that will show you trend lines of highly volatile stocks, so you could see when they shoot downwards. When they shoot downwards, that’s when you put in an order to lock in a certain depressed price.
3. Profitable Stock Investing Is All About Momentum
A lot of people think that they are the next Warren Buffett or Charlie Munger. The reality is that if you play stocks with a buy and hold philosophy, you need to have a lot of money, and you need to have a long timeline. There is no shame about that game. I’m not knocking down that game at all. Actually there’s a lot to be said for that way of playing the stock market.
A lot of positive things, however if you are a type of investor who is looking to lock in short term gains, you most focus on one thing and one thing alone, momentum. Thankfully, there are a lot of momentum stocks that you can see that has a one week or a one month pattern when the stocks have an upward momentum or a downward momentum. You can make money of this stocks, it doesn’t even matter what industry the stock is in, what price to earnings ratio it has, book value, institutional investment exposure or any other traditional measures of value.
The only thing you’re looking at is the momentum of the stock. Is it trending upwards, or is it trending downward. Either way you can make money out of both this types of movements. This is how you do it. You look for stocks with an upward momentum and you zero in when there is a temporary downward trend. Progress here is measured in terms of fractions of a percentage. We are not talking about an appreciation of maybe a 5% in every single day. It can be a 2% or even 1% down or 1% up.
If you play your momentum play properly, you can make quite a bit of money going in and out of the stock. The key here is volume. When there is enough people buying and selling the stocks, you can make money out of its temporary swings. You don’t even need to invest in other stocks; you can just focus all your time in one particular stock that is highly volatile.
There are many people who can make millions by playing the stock investing game this way. You can be one of them. Keep in mind that there are certain disadvantages.
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Top Disadvantage: Trading Fees
Whenever you are doing volatility momentum trading, you are going to be entering and leaving a position very frequently. It is not uncommon for people to buy and sell a particular stock several times in any given day.
Whenever you do this there are all sorts of tax liabilities on your gains as well as trading fees. This is why it is a good idea to open an online trading account that is for volume traders. This trading accounts charge very low rates for each trades this way, a large chunk of your profit remains profit instead of getting eaten up by your trading costs.
Another downside to this momentum trading is the almost irresistible temptation to trade on margin. Margin is basically borrowing money to invest in stocks. Resist that temptation, or focus solely on the amount of money you make and build it on your profits. This may seem tedious. It may seem like it will take forever, but remember, if you take a shortcut and the market crashes right after you take that shortcut, you might have to declare bankruptcy. You might be on a debt hole for a long period of time. It’s just not worth it.
Play only with the pool of risks money that you have set aside in the first place. This is the key for highly profitable and highly risky stock investing. The more risk you take the higher the return you get.