There is no straight answer to how to make money from trading stocks. You may buy a stock listed on Nasdaq or Dow Jones on a Monday, encounter a steady or abrupt appreciation and sell it in a few hours at a sweet profit. You may encounter this appreciation on Tuesday or over the subsequent days of the week and then sell the stock at a high. It is just as likely for the stock to undergo depreciation and you may have to hold on to it or many weeks to sell at a high. The basic premise of stock trading is buying at a low and selling at a high but the realm is much more complex than that.
You must get familiar with a few standard practices in stock trading.
There is day trading or intraday trading wherein you buy a stock and sell it on the same date within the trading hours. There is short term and long term trading. There are futures, initial public offerings, small caps, mid caps and large caps, stocks that pay dividends and then there are fiascos of all kinds that are a completely different category of their own. As someone who wishes to make money from trading stocks, you have to be familiar with opportunities. You must be able to spot one when you sense it or get to know about it someway. Stock trading is mostly about finding the right investment at the right time with the right goal and exiting the deal at the right juncture. The time you buy, the value at which you buy and the value you are aiming for, the number of days, weeks or months you are willing to wait or hold on to the investment and how you are studying the stock to preempt its behavior would be the crucial components of the whole exercise.
There are some easier ways to make money with stock trading on Nasdaq and Dow Jones among others.
You should consider mutual fund as one of your first investments if you are considering a diverse portfolio. You should invest a bit of money in large caps, mid caps and small caps. Mutual funds are not as risky as day trading. The returns are less generous but the investments are also more reasonable. You can always choose the type of mutual fund or the exact one where you would want to park some money. Investing in small, mid and large caps is of course an option. You should consider this if you are interested in stock trading for the long term. This cannot be a stopgap measure or a short term strategy. After you have explored mutual funds and the various caps, look out for initial public offerings. This requires research, planning and extensive homework. You would also need sufficient money to pick up enough stocks, unless you just want a piece or two. Initial public offerings can be very rewarding if you pick the right company.
You must consider a contingency plan.
You cannot choose to invest in stock trading without holding onto some investments that would keep paying you some returns in due course of time. This is why companies that pay dividends should be on your radar. Having sufficient stocks that can generate some dividends every year may take care of the various transaction costs and other expenses related to stock trading. You would continue to hold on to that investment and the stock price would appreciate over the years, thereby assuring you a return on the original amount you had put in. You would also become more familiar with the company, by extension the industry it operates in and you can leverage this knowledge to buy more similar stocks or to improve your stock trading strategy. You must balance low risk and high risk investments in stock trading, just as you must explore low return and high return propositions.
Daily updates, observing the markets, researching the related socioeconomic, geopolitical and other developments for every stock you are interested in trading and honing your understanding of how Nasdaq and Dow Jones among others operate would be at the crux of your quest to make money.
With over 12 years of experience in the financial industry, Owain has strong finance professional skilled in Investment Properties, Insurance Risk Management , and Real Estate Transactions.
MBA, Columbia University.