Being a stock trader can be both profitable and gratifying. To maximize the financial benefits and your own enjoyment, you need to decide what kind of stock trader you want to become. The right fit depends on personality, time availability, and capital investment.
Depending on how much risk they’re willing to incur, traders usually focus on one or more areas involving growth, value or income building.
- Growth-centered trading involves the practice of buying stock in companies that are poised to grow and expand their profits. This type of trading might focus on investing in new companies, which offer rapid growth potential. As a company grows, the value of its stock will rise, bringing the stock trader profits. Growth-centered trading may include potentially risky ventures like buying into a business IPO (Initial Public Offering). IPOs are a good example of how growth-centered trading can potentially bring great rewards; but it also carries a high risk of failure. Traders who pursue a growth-oriented stock-trading strategy must have the confidence to trust their own instincts rather than seeking reassurance from sure facts.
- Value-focused investing is one in which traders are on the lookout for underpriced stocks at companies that have the potential to perform better than their stock price seems to indicate. One way is to find companies that have significantly lower stock prices than that of their major competitors. It is important to ensure that the company in question has not manipulated its dealings to make the stock price fall instead of rise. Once honesty and integrity are established, along with the fact that the company’s share price is under-valued, the value trader is now in a position of less risk.
- Income-oriented investing is the most conservative of common stock trading strategies. In income-oriented trading, the focus is on capital preservation, with low price fluctuations being of the utmost importance. Since a steady income is the objective, an income-oriented investing style will focus on the biggest and best-known companies, those that dominate their particular market segment and can be counted upon for steady growth and profit. The emphasis is always on acquiring prestigious or blue chip stocks. This lower risk can be established by using bonds and time deposits as well as targeted investments in selected equities. Income-oriented traders usually end up focusing on older, more established firms with good market positions, established management teams and good cash flow.
After studying the ideas and practices of traders who apply all of these types of investing, you will be better equipped to find your own comfort zone using a style that suits you.
The world has many stock exchanges and many investors. An understanding of the following rule makes for simplification: “For every one buyer there must be one seller.”
Almost all types of stock trading are potentially profitable. But profitability is not only about picking the best stock. One must pay attention to complex rules governing matters like money management, risk management and trade management rules.
You should be flexible enough to use several different types of strategies in your market system and your business plan, so that you can adjust to the market, be it bearish, bullish or even range bound.
For a beginner in stock trading, making decisions can seem to be an overwhelming task. You may even wonder where to begin. One of the most helpful ways to get past this initial fright is to study the stock trading strategies of experienced and successful investors. By absorbing the ideas and knowledge of seasoned traders, you can form your own ideas about the style of stock trading that will best serve you in your particular situation. And the more you know, the more you’ll enjoy trading.
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