I have encountered many novice stock investors who jump into the deep end of the pool without the slightest consideration of their stock investment strategy. While courage and the commitment to take action are essentials when it comes to making money, having a game plan before you get started is equally critical.
Here are some things to consider before venturing out to make money in the stock market.
Who’s gonna handle your trades?
This may seem like a simple thing, but I’ve known many people back themselves into a financial corner because they chose poorly when it came to selecting a stockbroker. There are many options available for Internet trading today. All of them make it very easy to create an account, fill it with money, and start trading immediately. These different firms also make it equally easy to empty your account of money very, very quickly.
Do a quick analysis of how much you expect to spend for each individual transaction. Compare that as a percentage to any fees charged by that broker. It’s very important to know what you really need to do in order to make money. If the broker appears to be the cheapest, take a look at where else they’re making money. These firms have to stay in business. They have their own expenses. There’s nothing wrong with them making money. But it is your responsibility to know how they’re going to do it.
How much money do you have to invest?
When it comes to trading stocks, I’ve received some great tips from financial planners. First you should invest no more than 10% of your total savings in stock trading. This is especially true if you’re just getting started. Take that money and learn how to leverage it into more money.
If you’re successful, you shouldn’t even need more of your savings for the stock market because the money you have is growing anyway.
For any individual trade no more than 10% of your trading money should be put into a single investment. Even the best stock traders in the world lose money when they trade stocks. By limiting the amount of money put into any individual trade, they are able to protect their total pool of cash. This means that a stock that tanks won’t wipe them out because it never involves more than 10% of their total holdings. By coupling this approach with other strategies like stop limit orders, successful investors always make sure that their money is growing on the whole.
How much time do you have to trade?
Some stock traders spend 40 hours a week trading stock, studying companies, watching out for news, monitoring trends and keeping on top of their game. Other stock traders may barely spend 40 hours a month. Make a realistic assessment of how much time you have to trade stocks and then seek out a stock investment strategy that matches your particular constraints. If you’re on the road a lot you may want to find automated tools that keep you up to date and help you to quickly execute trades without the need for more of an Internet connection. You would want trades that can be handled by your own phone. If you’re able to be at home you may want to invest in a second monitor for your computer so your real time stock views are never obscured by some other window on your desktop.
It’s not about who is right and who is wrong when it comes to different styles of investing as well as different time constraints. Simply do a little homework before you get started because in the end making money with stocks is about your money working for you and not the other way around.
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