How do you invest in the stock market?
Making money in the market by trading stocks online, picking good stocks to buy now and choosing the best stocks to buy now may all be quantified in numbers. Whether you are going to trade penny stocks or you’re unfamiliar with how to trade stocks, finding good stocks to buy in the stock market today, in its purest form, is about philosophies.
To become a good investor and understand investing in the share market, consider this make money 101: investment advice on how to become a good investor. How to become an investor and stock market investing is about coming across pencil sketches of a financial plan that lead to the investigation of companies which eventually ends up on finally determining which one, or ones, to make an investment in – or not.
1. Read, Research and Subscribe
The way to become a good investor and finding the best stocks to buy now is the offspring of reading financial newspapers about the stock markets today, magazines, and internet articles, scanning the share market tables and investor reports or just by picking up the phone and speaking to your stockbroker about investment advice.
When trading stocks online and finding good stocks to buy now, one tried and true method for many of the most profitable long-term traders has been monitoring the analyst ratings; most especially the upgraded stocks and newly covered stocks with positive ratings issued to them. Understanding analyst ratings is a good starting point to your make money 101 education on becoming a good investor.
When looking to trade penny stocks, the most popular approach to gathering information for the 21st century is to take out a subscription to a financial newsletter. AimHighProfits.com offers a “FREE” subscription to receiving news and alerts on the “hottestpenny stocks” in the stock market today.
One major point we consider when trading penny stocks is not to trying jump over 7-foot bars: We look around for 1-foot bars that investors can easily step over.
In a basic make money 101 outline, we will point out basic guidelines used by the most profitable investors in the stock market today on for becoming a good investor and understanding how to pick good stocks to buy now.
2. Start With A Financial Plan
Trading stocks online needs to be treated as a business venture. Average investors follow the flow without putting much effort or time into their money’s future. Good investors take a few headline news reports and hire or trade with an expensive broker or over-priced online broker. The best investors take a few hours out of their day and scan the areas that show the best potential for short and long term gains. Yes It will require time and money to succeed. Knowledge will be acquired but to become a good investor you must treat your Financial Plan as your roadmap to success.
Decide Your Financial Objectives.
- If you are a 60 year old, growth stocks would likely be less important to you than cash flow generating stocks which would generate an income torrent to fund your retirement.
- If you are a 25 year old, income stream may or may not be a priority but focus should be placed on capital growth. Trading blue-chips, mid-cap, small-cap and penny stocks all depends on your financial objectives to determine whether you trade liquid shares or not.
One major point to consider when choosing the best stocks to buy is to approach the transaction as if you were buying into a private business.
Decide Your Risk Level
Risk comes in all shapes and sizes and choosing your risk level will help to determine the type of stocks to buy and what investment types you can afford to make. Never forget that the higher the return you want to achieve will almost always be coupled with the higher the risk.
The following is a summary of three typical types of investors:
- Low Risk Investor: I am not very comfortable with risk at all and when choosing which stocks to buy invest strictly in fixed interest/capital guaranteed securities (government bonds, bank term deposits)
- Medium Risk Investor: I can gamble a bit of money choose good stocks to buy based on mid to long term growth that I am willing to take on a moderate amount of risk (blue chip Industrial and Banking and Finance sector shares)
- High Risk Investor: I am comfortable with gambling some or all of my money choose strictly the best stocks to buy in the stock market today understanding fully the risk involved. I am seeking a high return and prepared to trade penny stocks, evaluate young companies early in their growth phase and even some recent big dips in some high value stocks (Penny Stocks, Junior Mining shares, Alternative Energy companies)
3. Employ Risk Management Strategies
Make money 101 would not be complete without mentioning risk. Every investment made, whether its real estate, online stock trading or business, has, to some degree, an element of risk. Managing that risk is what makes novice investors good, good investors better and the best investors elite.
In choosing the best stocks to buy now, it is essential that you understand what the risks are and capitalizing on your ability to minimize your long-term exposure to these risks. Large Fortune 500 companies and small Mom & Pop Grocery stores all employ some level of Risk Management as should you in choosing good stocks to buy in the stock market today.
Three Essential Elements To Manage Your Risk
Spread It Out: Don’t Put All Your Eggs In One Basket
Trading stocks online gives you full control of your choice of which stocks to buy. Spreading the risk in the purchasing stocks is as simple as not putting all your eggs in the one basket. Diversify your portfolio. Apple (Nasdaq: AAPL) is a great stock and currently the richest stock in the world but you wouldn’t put 100% of your investment capital in it as good as it is simply because your risk would all be based on the performance of Apple stock.
Spread your money around so that there is never more than 10-20% in any one single stock. However, don’t take this to the extreme and over-diversify by having too many stocks in your portfolio at once. You stand the risk of missing out on good profits in some of the choices you made of the best stocks to buy. If your portfolio matches the stock market today, then the results you can expect are those which the stock market achieves.
Try to limit your stock portfolio to between 5 and 15 stocks with the understanding that less is more; the less you own, the more you know about the intricate details about them and their trends .
Plan Your Trade and Trade Your Plan
Novice, amateur traders buy a stock they think is the best and their focus all their hopes that it increases in price. If it doesn’t and goes down, they continue to hold on to the hope that the stock will recover. When professional traders buy a stock they think is the best, they understand and realize that success is a probability, not a certainty.
When entering into the trade, they have predetermined an Exit strategy and an Early Exit strategy. Once the stock reaches a predetermined level above the purchase price or if the stock falls past a predetermined level, the good investor will immediately exit and never run the risk of losing out on an opportunity to book profits or making a huge loss.
Maintaining and stabilizing your money is a basic fundamental to successful stock trading. Investing in a stock and booking a profit is always a good thing. Making a large loss is not. Without planning your trade and trading your plan it is impossible to consistently profit from the stock market. Having suffered a large loss forces you to now make a large profit just to break even. The key to successful trading is keeping your losses small.
Wear Both a Seatbelt and a Crash Helmet
Successful traders all invoke the safest form of trading by understanding all aspects of a Stop Loss. Tracking the highest price reached by the stock since you purchased and monitoring if the stock falls by more than 10% from that price, it is time to sell. Good investors all follow by the 10% rule but this can be modified depending on your trading style.
Too large a percentage and you give away profits that should have been booked. Too small a percentage and, like a nervous prom date, it will get you out too early.
4. Don’t Buy and Hold
The stock market today has more investors entering into it than leaving each and every day into the strongest and sometimes most dynamic stocks in the world. Even though the market as a whole has always recovered from recessions, depressions, slips and falls, the same cannot be said for individual stocks and their companies.
If the stock market is booming or dooming, some companies profits while some can suffer unrecoverable losses. Traditional profits are made by trading stocks that are on an uptrend and selling the poor performers. This not only makes it impossible to experience any large losses but it also follows the thinking of one of the greatest investors of all time, Warren Buffett. The investor guru had a simple philosophy when making investments early in his historical career: The investor of today does not profit from yesterday’s growth.
This is the secret to outperforming the market and achieving consistently superior returns.
5. Trade Only Liquid Stocks
When selecting the best stock to buy now, make money 101 is to check the Volume and Average Volume traded on the stock. The data can be viewed in a number of different outlets but the two to begin your investigation with are the 3-month and 10-day average volumes. This is the amount of shares traded in the stock market today, last 10 days and last 3 months. If you multiply this by the price of the stock, you can see how much money actually transacted in the stock on that day or during that average time period. If this amount is high, then the stock is very liquid, meaning it is easy to buy and more importantly, easy to sell.
Part of becoming a good investor is not buying a stock that you get stuck with because you can’t find a buyer. For example, North Springs Resources Corp. (OTCQB: NSRS) went on an amazing run from October to February rising 2,200% before the bottom dropped out of it and the stock crashed. Finding a buyer may not be a problem but finding a buyer who is willing to pay a price that is acceptable is the problem.
In every stock crash are both buyers who can’t get the price they want and bottom-feeders who aren’t willing to pay the market price.Share