These five stock market tips for trading like a professional will put the odds in your favor if you are just learning about the stock market. The financial news shows would like you to believe that you have to know somebody on the inside of the stock market or a billionaire hedge fund manager in order to make money in the stock market. Every day people just like you are making money with the stock market when they follow a few simple stock market tips outlined here.
1.Big Trends Determine Profits or Losses
Highly paid analysts will spend weeks or months looking into the operations of a company before recommending investing in them. The problem with this kind of analysis is that it misses the big picture of major market trends. For example, when energy stocks are in position for rebounding, almost any energy stock can be a profitable investment. The point is that analyzing each company is less important than knowing major market trends for each sector. Once an investor determines that a sector of the stock market is undervalued, then it becomes easy to determine which company within a sector to invest in.
2.Pick Only the Best Companies in a Sector
After determining which sector of the stock market has the greatest potential to rise over your investment timeframe, only choose the leading companies in the sector for your investment. Some investors go for the mid-cap or smaller companies in a sector to get larger profits. The largest companies in the sectors that you determine are poised for growth, will be the slowest to grow but often the first ones off the launch pad.
3.Dividends are Real and Earnings are Not
Accounting for stock market companies has become complicated and somewhat theoretical. Earnings can be manufactured by shifting funds around the balance sheet and changing classifications for income and expenses. This kind of cook book balance sheet and income statement creation makes it challenging for an investor to determine whether or not a company profitable or not. Dividends, however, solve this problem. When a company is consistently paying out dividends and growing their dividend over time, they must be earning money to continue the trend. The wise investor looks for dividends and knows that earnings are present.
4.Only Invest in Stocks You Understand
This tip is particularly true when an investor gets involved in technology stocks or an area that they are not familiar with. Unless a person fully understands the value and the product behind the company, there is never a good reason to invest in a company. Even if an advisor or somebody else recommends the company, it is important that each trader or investor knows precisely the reason to invest in the company. This tip is particularly true when it comes to technology, biotechnology and complicated software companies. A person who happens to be in the same field as the technology company is in a better position to either invest or not based on their knowledge. Anyone outside of the field is at risk because they could simply be fooled by claims or technology that is not fully proven.
5.Use Exchange Traded Funds Over Mutual Funds
Mutual funds are more expensive to invest with than exchange traded funds. If an investor decides that they would prefer not to choose particular stocks but wants to invest in an industry or a sector, then exchange traded funds are the best vehicle for that form of investing. Mutual fund used to be the primary path, but are an outdated and expensive method of investing. These five tips will serve novice traders well in starting their investing journey.