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Tuesday, September 25, 2012

List of short, long term and other types of investment strategies for beginners and even retirees

People are different. Their personal differences influence their work, leisure time, long and short term goals and even the ways they invest. A lot of folks want to find out the best trading strategy and they spend a lot of time in various investment and speculation forums browsing through various trading that are there. From my personal perspective I can say that you have to spend some time experimenting on a few strategies before you finally find something that you feel comfortable with and the one that gives you a satisfying return. Some have too unrealistic expectations regarding trading and practicing various trading systems will open their eyes to the fact. It will take time for you to master various aspects in this or that system, but when you will finally do you will be able to introduce various filters that will help you to filter out various false signals pertaining to your trading strategy. Let us look through some of the best known strategies with their advantages and disadvantages. 

If you want to make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro. 
The most famous ‘buy and hold’ way to invest

This is probably the best known and talked about investing strategy, which has been losing its’ attractiveness lately. The one who practices this type of trading system would keep his investment portfolio the same for years without making major changes. Warren Buffet would probably be the best example of a person who buys and holds his securities for a lifetime. The idea with this trading method is not that you buy some shares and forget about it. No, you would periodically buy more of the same kind of securities (adding to your position). Traders who use this way to trade believe that markets will continue rising even after the worst possible collapses and the best companies or goods or any other types of securities will recover and those who invest in them will prosper long term. Having made right choices one might become incredibly rich within a decade or so. 

However, there is a dark side to this type of investment too. If you do this with high leverage and in a down trending market you might lose all of your money. Even the best companies may go bankrupt in a period of ten or fifteen years. Do analysis and you will see that it is very realistic. Some shares that gave traders millions of profits years ago are no longer on the stock exchange. You will have to spend a lot of time studying companies and their future perspective to compete in the global market long term and only then to make a decision to buy the shares of it and hold. However, remember that there is no such thing as good as secure investment nowadays. What is good today might be worthless in a few years time. It may actually become a good ‘sell and hold’. 

Dividend investing method

This way of investing is based on buying the shares that have high yield dividends. One would have to look through his investment portfolio about one time a year. A trader using this type of trading system expects that other traders will notice these high yielding dividend shares and start buying them and as a result of this the shares will rise. There are a variety of approaches to this way of trading. Some would select the best stocks of Dow, choose ten that give the biggest dividends and hold them for a year. You have to re-invest the dividends that you get though. You have to learn how to make money from the rise in these stocks, because merely getting dividends for one year may not be enough to cover losses if you entered market at wrong time (as well as taxes, transaction costs and a few other things).  Dividend trading system is quite similar to carry trades in Forex market. By this I mean buying those currencies that have high interest rates against those that have very low ones. This could be buying AUD against JPY or NZD against USD. You make some money just by keeping your long position for some time. If you want make big money you need to learn to predict price action in advance and go with the trend from the moment it starts. 

Investing in indexes strategy

Depending on your investment expectations investing in indexes might be a good trading system. We know that if you simply buy indexes such as “Standard & Poor's 500”, Nasdaq Composite or NYSE Composite you will mostly outperform most of investment funds. Those that initially introduced this investing strategy assumed that markets are effective and you will surely get your return sooner or later. Unfortunately, most recent volatile moves in the markets make one doubt safety of such a system to invest into markets. One could mix it with the two above trading strategies as well as the principle of buying low. 

Investing into certain market sectors system

Everybody knows that concentration is key to achieving success wherever you expect good results. Those that are not satisfied with average results and want bigger returns will have to concentrate specific market sectors: medicine, finance, tech, growth or value stocks and etc. This again will work best if you find the bottom after a fall in a sector and start buying from there. Technical analysis (support and resistance) might help you to do this. On the whole, you will be able to achieve extraordinary results if you learn how to identify potential lows (where you should start buying) and highs (where you should get out of the market). 

Value investing technique

This type of investing is a prerogative of fundamental analysis. Investors want to buy shares that are undervalued according one or a few factors of fundamental analysis. Unfortunately, it is not easy to decide which fundamental aspects are so important that they have to be taken into consideration in terms of investing. Some stress some things; others see importance in other factors. There is a popular way of saying that stocks are undervalued if their price is lower than total price of all assets that specific company has. However, nowadays most investors would disagree with the idea. More and more investors would say that intellectual power as well as progressive work force is no less (maybe more) important than material assets of a company. They tend to pay more attention to P/E ratio (price earnings ratio) to decide whether the company is undervalued or overvalued. 

Growth investing as opposite to value investing

A growth investor would not concentrate on whether the company is undervalued and does not reflect the real value, but on fast growth of a particular company he is interested in. Growth of a company is usually determined by studying how fast a company grows its’ profits and income. The key here is not only to find a fast growing company, but also the one that has not exhausted its’ growth potential yet. Those that are not trained will probably notice a growth company at the end of its growth and expansion. That’s what the crowd usually does. It joins the move at the end of it. You have to notice a potential where nobody sees it yet. 

The problem with investing in growth companies is that you never know when the growth will stop. Investing in a company that has been growing for over a decade maybe risky, because it can be at the peak of its’ growth. When growth investors start feeling that the company has exhausted its’ potential they start closing their positions and shares of the company collapse. They company might try to lure investors by offering attractive dividends, but it will probably not tempt growth investors to come back as they are interested in profiting from a growth of a stock, not from dividends. They risk more, but they also reap more. 

Investing into securities that you understand

By this I do not mean only investing methods that you understand, but the companies which you understand, trust and believe have a potential to grow. If you work for a company that is on the Stock Exchange you are surely aware of the state your company is in: profits, strategy, marketing, sales and possibly future perspective. This may lead you to invest or refrain from investing. Avoid companies that you do not understand. If you are not a tech guy you would probably not tech stocks. Of course, if you are a trader that follows technical analysis, looks for areas of supply and demand you could probably trade any security you want. 

If you are an investor you should learn to concentrate on markets or market sectors that you understand. If you understand what influences oil prices you might consider doing analysis of all major oil stocks. Then picking those that might be undervalued now and have great potential to grow! You can also do analysis of various commodities and decide which ones you want to invest to. However, you should not invest only in one type of stocks, but try to diversify. But be sure you know what you are doing! 

Speculating, day trading and scalping

People have been speculating in the markets for a long time. A speculator tries to profit from price fluctuations and he will never apply strategies such as buy and hold or invest into companies just because they pay big dividends. No, they want to see change in prices and benefit from that. At the sight of the slightest market reversal a speculator would run out of the market like a thief. Well, I am exaggerating a little, but a smart speculator would never watch his profits being eaten by market sharks and doing nothing. He would move his stop in the direction of a prevailing trend till his stop is taken out. Day traders would not bother keeping their trades open for more than one day’s session. And scalpers could open hundred positions during the day. As you may understand this kind of trading strategy requires a lot of skill. I haven’t heard of many who are able to do it.

If you want to make extra money and are ready to trade Forex, futures, indexes and stocks I recommend Etoro. 

Final thoughts

Investing requires skill, goal setting, understanding of one is doing and a lot of patience. Success comes only when one is ready to handle it. Investing community has a lot of traders who practice various investing strategies and you will find very successful investors who are follow fundamental analysis as well as those who rely on technical. Although they are different anyone who wants to have long term profits has to cut one’s losses and increase one’s profits. Have this in mind when you will be considering which investing strategy to choose. 

Good luck trading. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 


Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.