Trading stocks – The common man’s guide to it

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With all the hype going on today about cryptocurrencies, banking, and its varied options and investing in stocks, it comes across as no surprise when even the common man speaks the trading language with such ease. The math is easy – we have better jobs, the standard of living is slowly and gradually rising, foreign companies are starting their branches to India and we can move from the phase of simply “earning a basic livelihood” to living it up!

Today, a number of online trading system platforms in India urge people to come forward and invest in stocks. The reason is simple – such kinds of investments help the economy to flourish, give its people a better opportunity to earn a few extra bucks and also give them a push to give stock markets a chance one more time. Going forward, the initial fear of investing in stocks, trading and its relevant aspects clear and people actually look at it as an investment and invest in the same.

Here are some of the best stock market investment tips for new investors:

  • Keep sufficient money in your account: Some Federal Regulations state that one should have at least half of the cost of the stocks they aim at purchasing in their account. It also mentions that the equity percentage should be no less than a quarter of one’s total investments. Keep a decent amount of money aside to manage unplanned ups and downs in trading.
  • Do your research: It is vital to know everything about whatever you are doing and the same goes for trading stocks too. Read about its basics; observe how people work in trading, how to invest, buy and sell and everything you can get your hands on. Having someone who is already into in at this phase can be of great help.
  • Know when to buy and sell: Basic rules state that you should buy when the prices are low and sell when they increase. However, there is no definitive rule to know when stocks are at their highest or lowest prices. The best way, in this case, is to focus on stocks with great momentum. Of course, good observing and experience also help.
  • Don’t focus only on a stock’s pricing: Apart from only the stock’s pricing, read about the company as a whole: how have they grown, their history in trading, future plans etc. to gain a much better picture. Consider a number of vital factors, weigh them and then take a decision.
  • Be wary of frauds: The best way out of frauds – if something sounds too good to be true, it probably is. Work with your own judgment and do not trust someone too quickly. Also never get emotional with a partner or dealer and always be a little cautious while purchasing stocks.
  • Play by the rules: It is so important to not only be aware of the rules but also abide by them. Your investments will not be acknowledged legally if you do anything that is against the law (if there is a fraudulent case). Keep it simple and clean and stick to the basics of good stock trading no matter who it is with.

Even today, the best way to trade stocks is to simply involve good and in-depth research about the stock market, become well aware of common and basic aspects of trading and putting your best foot forward. Apart from this, an even more important tip is to start off small and then opt for bigger shares as you gain more confidence.

A common question among investors is how a strategy can work when a large number of investors already know about it. Researchers have shown that if a strategy is based on sound investing principles, it can work no matter how well known it is. This idea applies to the Dogs theory which has been well known for many years. Although most investors believe the theory dates back to the 1991 book Beating the Dow by Michael B. O’Higgins, we showed in our earlier article that the strategy was actually first written about in the June 1951 issue of the Journal of Finance. Although the strategy has been available to investors for more than 65 years, it still works because it is based on sound investing principles. Those principles are diversification, time and value.
First, the Dogs is a diversified strategy with five or ten holdings. It is important to hold several stocks within a strategy because any one stock can deliver a loss. On the other hand, any stock can deliver a gain. By diversifying, investors increase the probability of owning a stock that delivers a gain.

Second, this strategy gives stocks time to go up. Over the past twenty years, as the internet allowed investors to obtain real-time quotes and place trades quickly, expectations for rapid returns seem to have become common. During the bubble of the late 1990s, some day traders believed they could consistently achieve triple-digit gains and retire after just a few years of trading. Many of these traders lost large portions of their portfolios when the bubble ended and the market crashed. Since that time, general expectations of investors seem to have become more realistic but there are still many traders targeting large gains in short time frames. This is possible with some strategies but for many investors, it could be best to take a longer term perspective like the one-year perspective of the Dogs strategy.

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