Stock trading is a time honored tradition among Americans. There is something uniquely capitalistic about the idea of holding nominal ownership stakes in some of the nation’s largest companies, from Microsoft and Facebook to the Green Bay Packers.
But everyone has their own ideas about this exhilarating and sometimes aggravating guessing game. Your father tells you that you can’t go wrong buying in the service industry, your cousin laments over not getting into tech stocks months ago. So who should you listen to, and where should you start? The answer is simple: stock trading strategies are not difficult to develop, but honing in on the right one for you requires a little homework on your part. In order to craft the best trading strategy for your money — because it is your hard earned savings at stake — you must first look inward.
Understanding your investing profile
The first step in customizing your approach to stock market trading is to understand your investing profile. This helps you analyze your goals and acceptable risks in a meaningful way. We all want to see growth in our portfolio year after year, and deciding on your personal investing strategy will help you achieve that aim.
Are you looking to acquire a broad portfolio that generates a small portion of passive returns with low risk? Or are you more interested in an aggressive strategy that may net huge returns with the potential for major losses as well? You must also consider your needs, as older investors generally place their money in lower growth dividend stocks that are unlikely to dip in price and pay a return every quarter. By choosing this route, they sacrifice large growth potential as well, but this is fine. Older traders typically want to protect the nest egg they already have, not create a new one. Younger investors are much more likely to seek out higher growth stocks, but again, these come with larger downsides as well. It’s all in the risk you find acceptable, and that’s a key component of your profile.
Choosing the right stocks to fit your needs
Once you’re following your profiled approach, picking your stocks should come a little more easily. This also requires a bit of strategy, though. If you intend to invest a small portion of your total savings in the market, you will be unable to engage in day trading activities (which just means selling your stocks the same day you bought them). SEC regulations prohibit what it terms “pattern day trading” for small investors, which is anyone with under $25,000 in their accounts. Day trading can be a great way to promote explosive growth in your portfolio, but only if you are experienced in the practice. This is part of the reason for the high bar set by federal authorities.
For most, day trading is not their cup of tea, and it’s often best left to the professionals. But even professional help isn’t necessarily the best bet for your financial security. If you make it your mission to study stock movements and learn market patterns, there’s no reason why you cannot be successful on your own and without the addition of that tacked on fee for your financial planner.
Whether you subscribe to Warren Buffet’s “buy companies you believe in and hold” mentality or a more skeptical view of the market like prolific day trader Paul Tudor Jones, now is undoubtedly a prime moment to throw your hat in the ring. The market is booming and you owe it to yourself to capitalize on your savings.