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.
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.
Vytas.
Disclaimer
Trading
financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.