Let’s get this straight right at the beginning – there’s no single policy or strategy that works for all investors. And the funny thing is, a strategy that worked for you before, might not work for you again. So the natural question to ask is – is there really something like a winning strategy?
Well, that’s the interesting part about the stock market. The uncertainties, the huge risks involved, and of course the potential to go for the kill and make a fortune in record time… everything comes together to give us the “stock market”.
But of course that’s not always true. For instance, if you buy at low prices, and sell at high prices, you can always make a profit. This is the fundamental truth on which the stock market, the brokers and the investors work. It is simple and it is true, no matter what the market condition. But the problem is, the stock market, and its strategies are not always that simple.
So here’s the truth
It is essential to formulate a policy based on your objectives, current market conditions, the state of the economy, and of course the actual stocks you are trading on. In other words, stock market trading strategies need to change based on several variables.
How to Formulate Your Stock Market Trading Strategies
Mentioned here are some of the approaches that can reduce your risk, by helping you formulate your stock market trading strategies.
Value Investing – A good strategy would be look for stocks that appear undervalued. This often happens because of factors like short term trends and others. So the actual worth of the company might be more than what the value of the stock is. Such a stock is always a good pick, because it is sure to rise soon enough. However, don’t expect a good return immediately – you must wait.
Swing Trading – This strategy can make you money in the short term. Make an attempt to identify weekly or even daily trends. If you are good at it, you might be able to identify a stock just when it has started climbing, and buy it at the right time. Remember, market timing is very important here. This approach is however risky because if you pick the wrong trend or the wrong timing, you could lose a lot of money.
Seasonal Tendencies – Often certain stocks fluctuate due to seasonal variations. The price changes here are not related to any change in the actual value of the stock or worth of the company. It is often driven by expectations and perceptions rather than anything else. For instance, if a big event is coming up such as the Olympics, the stocks of hotel and airline companies might go up because people would be traveling more.
Blue-Chip Investments – This is perhaps the most conservative approach, and a strategy that can never lose you money. First you select a few sectors such as steel, power, banking, and then you buy stocks of the best companies in this. You can earn the dividends, and the value of the stocks will also give you money when you sell off.