To say that research is important to investing is like saying air is important to breathing. The strange thing is that research is often overlooked by the amateur and the professional alike. Instead they look for today’s action. What’s moving? Where’s it going?
Getting the basic information before the investment is made can do absolute wonders for saving the investor money. A sudden price increase should never be the only reason to buy a stock. An increase in either price or volume might call your attention to a particular company, but also get the background on what’s happening.
Tip: Do the research before you invest, not after.
Analysis of Company
There are multitudinous ways to analyze companies and their common stock, but only one thing is important to the investor: an increase in price that is higher and faster than secure fixed income investments.
Some knowledge of trends, both of the stock market and individual stocks, is important. Is the current market trend up, down, or in a secondary movement? How is the price trend of the individual stock related to the market trend?
In relation to trends, some knowledge of support and resistance can quickly tell the investor what is likely to happen in a sudden current movement. Looking back at three-year, five-year, and sometimes even 10-year price trends can give some excellent training in finding support and resistance levels.
Planning Strategy
The most important part of strategy is setting investment objectives. Each investor should have a well-defined general objective as well as a specific objective for each individual investment. To say, “I want to make a lot of money in the Stock Market,” cannot be considered an objective. It’s a dream … a wish without definition. An investment objective must:
- Be specific
- Be reasonable in expectations
- Consider risk
- Have a time frame
- Be measurable
Trading Stocks
It used to be said that the only time to sell a stock is when you have found a new one to buy. With the extended bull market of the past decade, this has changed to something like the only time to sell a stock is when you believe it cannot live up to your growth expectations. If the stocks are researched well before they are bought, most of the trading here will be buying rather than selling.
Why is it best to trade “at the market”? You might also ask why risk your entire trading strategy for a few extra cents per share? When the market moves, it moves. It doesn’t sit there and wait to execute every limit order.
Ideas in Investing
This part also explores other good ideas in investing, things that should be remembered, like “Never Get Married to a Stock.” As obvious
as this statement is, it’s amazing how many people will hang on to hope for a stock until the company shuts its doors forever.
Keeping good records is an obvious advantage, and investing in what you know best is one of those simple rules that people often either don’t think of or forget outright.
Caution While Trading
The first note, “Give Stop Orders Wiggle Room,” simply means to place a stop order far enough away from the current trading price so as not to tempt the specialist or market maker into executing the order. Although sell stops are used, the preference is that they never be executed. You only want buy stops executed when the stock price is having a strong upward movement.
No matter what the indicators are currently saying, it’s inevitable that something can happen to completely override and overrun them.
Simple advice, like be wary of stock tips (from anyone) or be careful with a margin account, is basic common sense. Many people are completely caught by surprise with their first margin call, and that should not be the case. Margin calls only happen when the margined stock price is dropping, information that is constantly available.