Investors can use a number of strategies to invest in the stock market. To begin with, they need to analyze market trends, learn about the market in which the companies they are interested in operate, and purchase shares at an appropriate time.
Usually, good companies announce their profits, or their status in the market, at certain times of the year. The prices of their shares tend to increase before such announcements are made. Therefore, investors need to watch out for these periods, and not purchase shares at this time. In other words, it is important to wait for the right ‘Market Timing’ for trading in shares. Some basic stock market strategies for investors are listed below: –
Make a well-planned investment portfolio that satisfies a particular level of risk tolerance.
Keep reviewing and updating the investment portfolio to keep up with market trends.
The technical analysis of stocks helps in gaining better knowledge about a company: its profits, its market capitalization, and its future growth prospects. Equally important is to be able to understand and apply the quantitative measures of the stock market.
Since investing in the stock market is complex, inexperienced investors should always seek help from financial advisors and stock market analysts before committing themselves and their money.
The motto being “Buy Low and Sell High”, always buy shares when their prices are low, and sell them when the price goes up.
Invest intelligently. A sharp sense of the market, along with a good knowledge of the company you plan to invest in, helps in making better investment decisions. Investors should thoroughly research the market in which the chosen company operates.
Long-term vision and planning is vital. Investors should evaluate their capital strength, and set their tolerance limits, before investing in a company. This means, knowing when to hold on to the shares, and when to quit.
It is generally advised to devise and apply an exit strategy cautiously. Investors can make their exit when they have gained good returns over a certain period.
The returns gained from selling the shares of a company can be re-invested in some other, promising higher profits.
Investors should also set their tolerance limit for the amount of loss that they are ready to bear when the market is down. They can exit when their losses approach or cross this predetermined limit. This strategy of limiting the amount of loss an investor can withstand is commonly known as “Stop Loss Limit”.
Another strategy investors can follow is to ‘Buy and Change Frequently’. Market research shows that every company has some limit on the expected gains from their shares. Investors can therefore move out of a stock when they have achieved maximum returns from shares accordingly. It is important to invest in a variety of companies to withstand the losses of a few.
The objective of any investment is to maximize returns while minimizing risks. Diversification helps in maximizing returns from investments in stocks and bonds by managing risks better. Investors ought to distribute their investments across several categories like foreign securities and mutual funds to be on the safe side, and in the process enjoy good returns.