“In investing, what is comfortable is rarely profitable.” – Robert Arnott
Trading (or investing) in one or more of the global financial markets is exciting and can be financially rewarding. However, sometimes you will have to consider taking calculated risks that you would typically not be comfortable with taking. Furthermore, as the quotation mentioned above by Robert Arnott states, comfortable investing very seldom returns a reasonable profit.
Successful capital market investing
Therefore, to ensure that you make the right decisions while taking calculated risks, it’s essential to have an intimate understanding of how to invest in the stock market. You will have to step out of your comfort zone and take risks when investing in global financial markets.
Here are several tips to help you trade successfully on the global stock markets:
Draw up a trading budget
It’s vital to decide ahead of the time how much money you can set aside to invest in stocks. This should be money that you are prepared to lose. It should not be housekeeping funds or funds that you need to get you through the month. The rule of thumb is that you should have very little debt (or no debt) and at least six month’s living expenses saved in a savings account before you start investing in the stock market.
Determine your strategy
Investing in one or more of the world indices such as the Dow Jones should be a well-planned, and well-thought-out venture. Your exposure to risk determines your trading strategy. Should you want a low exposure to risk, then you should implement a long-term strategy. On the other hand, if you are interested in making lots of money quickly, then the correct strategy to implement could be a short-term strategy.Many say that a better approach is usually to adopt a medium-term trading strategy.
Risk versus reward
Furthermore, it is vital to remember that a long-term trading strategy translates into lower reward over a more extended period. However, your initial investment is normally safer. The risk of losing this money is very low. A short-term trading strategy equates to a high risk, high reward scenario. Ergo, you could earn a substantial amount of money in a very short timeframe. However, there is an equal (or higher) chance that you will lose your initial investment.
It is a good idea to buy a wide variety of stocks, across all different niches. This way, you won’t lose your entire investment portfolio if you only invest in one sector and it goes bust. For example, if you had traded only in technology stocks in the 1990s, you would have lost a substantial amount of money between 2000 and 2002 when the Dotcom bubble burst.
It is also a good idea to add hedge (or safe) stock such as gold to your portfolio. Hedge funds are designed to protect investment capital during periods of extreme market volatility. You will find that when investors lose confidence in the capital markets, they sell off their high-risk stocks and move the money into hedge stocks.
Buy low sell high
It makes sense to buy shares in a company when the price is low and then sell them when the rate is high as it is the best way to grow your wealth portfolio. On the other hand, if you buy high and be forced into selling low, you stand to lose a lot of money. It also stands to reason that if you buy shares at a specified price per share, and this price suddenly drops, it should hold onto these shares and only sell them once the price has started climbing back up.
Don’t trade on your emotions
Finally, trading with your emotions makes the job of increasing your wealth portfolio a lot harder. Before you buy or sell shares, you should have a look at the global market conditions, how well all of the stocks in your company’s sector are doing, as well as the performance of the individual company’s shares before you make any decisions about buying or selling shares. Deciding to invest in a particular stock (or not) should be based on analytical and statistical research, not on whether you like the company’s products or not.