5 Ways to Trade Stocks

By definition, no stock or financial security is 100% safe. Each time you invest in the financial markets, you are assuming a certain level of risk because there is no guarantee your security will generate returns. Hope is not lost, however, as there are many ways you can increase your chances of success in the stock market. In this article we list five possible ways you can improve your performance in this highly volatile market.

1. 1.       Investing in index funds

Index funds are an excellent alternative to stock investing. By investing in a segment of the stock market, say the S&P 500 or Dow Jones Industrial Average, you are benefiting from broad market exposure without assuming the same volatility as individual stocks. This is also a great way to keep operating expenses and portfolio turnover low. Most of the major index funds all over the world have generated solid, consistent returns over time. For this reason, many investors consider indices an essential component of any well balanced portfolio.

1. 2.       Buying industry blue chips

If you’re looking for an even bigger return than index funds, consider buying blue chip stocks, which are well-established and financially sound companies. These stocks are known to perform well during downturns, have an established record of stable growth and have widely accepted products and services all over the world.[1] If you don’t know which blue chip is right for you, start by analyzing the companies listed on the major indices like the Dow Jones or S&P 500.

1. 3.       Becoming an active investor

One of the great things about index funds is not having to spend a lot of time or energy maintaining them. Buying individual stocks, on the other hand, requires a lot of meticulous research. If you’re not an active investor, you need to become one if you’re thinking about investing in individual stocks. Luckily, there are literally thousands of online resources that can help you learn everything you need to know about a particular stock. Learn as much as you can about the company before you decide to invest.

1. 4.       Specialising

Just as investors like to specialise in a particular part of the financial industry (e.g. stocks, bonds, commodities, forex, etc.), it’s also wise to develop a niche in stocks. If you have an IT background, you may know more about the technology industry than others. In that case, consider specialising in technology stocks. The same applies to other industries. By developing a specialisation, you may increase your chances of success.

1. 5.       Trading defensively

The number one goal in investing is not to lose money. This is especially the case in stocks, where market volatility can leave you on the losing side of a trade more often than not. That’s why you should adopt a defensive trading strategy that minimises risk exposure, diversifies assets and doesn’t rely on leverage. If you want to trade as safely as you can, don’t expect to become wealthy overnight. 

Final Words

There really are no guarantees for succeeding in the stock market (even index funds experience volatility from time to time, so investors should be willing to hold them for a very long time). However, by investing in blue chips, doing meticulous research and specialising in a particular industry, you may maximise your chances of success in a profound way. After all, as Benjamin Franklin said “An investment in knowledge pays the best interest.”

Risk warning: Forward Rate Agreements, Options and CFDs (OTC Trading) are leveraged products that carry a substantial risk of loss up to your invested capital and may not be suitable for everyone. Please ensure that you understand fully the risks involved and do not invest money you cannot afford to lose. Our group of companies through its subsidiaries is licensed by the Cyprus Securities & Exchange Commission (Easy Forex Trading Ltd- CySEC, License Number 079/07), which has been passported in the European Union through the MiFID Directive and in Australia by ASIC (Easy Markets Pty Ltd -AFS license No. 246566).

 

This article is a guest blog written by easy-forex