If you are in the stock market participating in an active or passive way, the most difficult thing to know is when do you buy or sell your stock. There are different types of players in the market. Some believe in intraday trading, where people buy and sell stocks in a very short period of time in order to make quick gains.
There are also people who trade in a pre-fixed schedule like every quarter. And there are also some instances where people just want to buy and hold in order to make long term gains. These long term investors are also known as value investors. These are few of the major approaches used by traders and investors all around the world.
In order to know when to buy or sell, first one needs to understand the fundamentals of stocks and how it operates. Stock form part of the equity investment done by the company and its shareholders. Anyone who buys a share of a company e.g. Microsoft, means that individual is a partial owner of Microsoft to the extent of the number of shares he’s got. If the company does well he’s bound to get some gains out of it and in the opposite scenario he’s going to make losses.
There are a few things one needs to keep in mind while entering the stock market. Firstly try to find a stock which is trading very near or at par to its book value. If you find these types of stocks buy them only after learning a few facts about the company. Try to look into the company’s previous annual and quarterly reports in order to get some idea about the company’s position. After completing the whole research go ahead and buy the stock, as you will be getting it at a very low price.
Before buying make sure you find a brokerage house offering low brokerage rates, fast trading facilities and a good research desk. While buying, make sure that you have a profit target. Try to decide why you are making this investment. See to it that how the stock performs along with the other investments made in your portfolio.
Depending on your investment goal decide how much risk you can bear. It can be for your retirement, new home, car or even children’s college education. In case of a long term investment horizon you can take higher risks as the probability of risk decreases as the time goes by. So in the end you can buy shares at a low price and sell it depending upon your investment horizon. Here the chances of gain are very high due to the low price of stocks during the initial stage of investment.
Once your profit target has been achieved get out of the trade as soon as you can. This is something a lot of people don’t follow as they hold on to a stock when it is going through a bull-run. By following this strategy you might make lesser gains but it will definitely save you from making further losses down the line.
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