Buying and selling on stock market

Different stock trading strategies can reduce your risk whether you intend to trade in the short term or the long term.

The purchase of shares is an investment that represents the ownership interest in a company, giving the shareholder part of the profits and assets of the company.

While investing in individual stocks isn’t for everyone, determining your strategy in advance can make it less complicated, says Michael Antonelli, managing director and equity sales operator.

“It’s important to know the risks before tackling a task that can be exciting and frustrating at the same time,” he says. “Not only do you face other humans, but you also face algorithms and computers that can make buy and sell transactions in a split second.”

For beginner investors just learning the basics of stock trading, here are answers to some common questions:

• How much money do you need to start stock trading?
• What are the different stock trading strategies?
• When do you buy stocks?
• When do you sell stocks?

How much money do you need to start stock trading?

While many discount brokerages will let you open an account for a low minimum or even for free, a good rule of thumb is to start with a $1,000 investment that you can afford to lose, experts say.

“The stock market is not a magic ATM and investors should never put in money they need or they will lose it,” says Jason Spatafora, a Miami trader and founder of Paper Street Capital.

What are the different stock trading strategies?

There are dozens of various stock trading strategies, but the two main investment styles are active and passive management.

Passive investors invest in mutual funds and exchange-traded funds, which reflect stock market indices such as the Dow Jones Industrial Average or the S&P 500 Index, says Robert Johnson, professor of finance at Creighton University’s Heider College of Business in Omaha. Nebraska

Broad stock market indices tend to be much less volatile than buying individual stocks due to their diversification. Another advantage of passive management is that the fees are much lower compared to active management.

“Reduced costs are a definite plus for passive management and have been one of the main reasons for the growth of passive management,” he says. “An investor cannot control the returns he receives on his investments, but he can control the costs.”

Having a mix of passive and active management in your portfolio is another strategy. Investors should focus on fees and select low-fee mutual funds and ETFs, experts say.

In active management, specific stocks are chosen to outperform the market. The problem is that returns are uncertain and volatility is a constant risk. Picking stocks can be a silly task and remains extremely challenging.

Stock trading is not for everyone and even the most seasoned market veterans have been sidelined during recent market volatility.

When do you buy stocks?

Distinguishing between a trade and an investment before buying a stock is important. A stock trade is short-term, lasting from a few hours to a few days. In contrast, inventories held longer are considered an investment.

Investors should know how risky they are going into a trade and have an idea of ​​an exit point ahead of time.

New investors are not recommended to attempt trading given the level of experience required to be successful. Most of today’s volume involves computers, so realize who you’re kidding. The saying ‘the trend is your friend’ is true. Pay attention to the advice.

The adoption of technical or fundamental analysis are strategies that present risks. Some investors prefer to use fundamental analysis to dissect a company’s earnings and macro trends to decide when to buy and sell a stock. Others chose to follow technical analysis because they believe that price and charts don’t lie when it comes to investor supply and demand.

Investors need to know that individual stocks can be risky, and even when they think they understand a company, something can come along to derail them and their investments.” “Even big companies struggle. Just look at GE (NYSE: GE), a name that was once considered the gold standard for American companies that is now under $10 a share.

One strategy is to buy a stock when the intrinsic value based on fundamental factors is less than the current stock price. One metric used by investors is the comparison between the price-earnings ratio and the growth rate, commonly called the PEG.

Computing a PEG rate is one method. For example, if a stock is selling at a PEG rate of 16 times and has an expected growth rate of 8%, it will have a PEG rate of 2. The lower the PEG ratio, the greater the margin of safety.

Investors don’t even need to calculate the ratio, as many sites do it for them.

When do you sell?

A stock should be sold when the reasons you bought it deteriorate or because it is overvalued.

Perhaps the only thing investors hate more than risk is taking a loss. Investors convince themselves that until they sell the stock and realize the loss, they really haven’t suffered. They are so reluctant to take losses that they feel like losers, even though the tax code encourages taking losses.

If a stock moves against you, seriously think about whether your reason for buying the stock was wrong, he says. Determine whether the market is truly undervaluing the stock and its price is likely to rebound.

Do your best not to succumb to the quiet affliction of needing to recoup your losses before liquidating an investment.