Trading strategies are flexible, but switching between them can be expensive. The following are some of the best trading and investing strategies you can use. Take time to understand each of them before you take the plunge and start your career in the investing world.
Value investors are basically traders looking for a stock at bargain price. They prefer undervalued stocks with prices they believe do not fully reflect the intrinsic value of the security.
This strategy has an assumption that there is some degree of irrationality in the market. And this irrationality present opportunities to get a stock at a discounted price and make money from it.
You don’t have to comb through thousands of financial data to find a good stock. Thousands of value mutual funds provide investors the capability to own a basket of stocks believed to be undervalued.
Instead of looking for bargain deals, growth investors seek investments offering strong upside potential when it comes to the future of the company’s earnings.
You can also consider growth investors as searchers for the “next big thing.” However, it’s not a mindless adoption of speculative investing. Instead, it involves evaluating the current health of the stock and its overall potential to grow.
As a grow investor, you should consider the prospect of the industry in which the stock thrives. For instance, you may ask whether there’s a bright future for electric car manufacturing.
The downside to growth investing is that there’s usually no dividend opportunities. If the company is growing, it usually needs some capital to sustain its expansion.
That means there’s not much left for cash dividends. At the same time, faster earnings growth comes with higher valuations which are generally a higher risk proposition.
Growth investors need to consider the company’s management prowess since achieving growth is among the most difficult challenges for a business.
Momentum investing is investing to ride the wave. They believe that winners keep winning and losers keep losing. They try to buy stocks experiencing an uptrend.
Since they believe losers continue to drop, they may choose to short-sell those assets. However, short-selling is an extremely risky practice.
Momentum investors are also usually technical analysts. The utilize a strictly data-driven approach to trading and search for patterns in stock prices to help their buying decisions.
Traders using the momentum investing must be on the switch. They should be ready to buy and sell at all times. Profits build over months and not years. This comes against the usual buy-and-hold strategies that adopt a set-and-forget approach.
Dollar-cost averaging is the practice of making regular investments in the market over a period of time. But this strategy isn’t mutually exclusive to the other strategies above.
You can implement whatever strategy you choose and still do dollar-cost averaging. The disciplined approach become powerful when you combine it with automated features doing the investing for you. It’s true that it’s easier to commit to a plan when it requires little to no oversight.
This strategy also saves you from the painful downsides of market-timing.
The key to success is awareness. That’s why you need to check Finance Brokerage educational websites available. And you can choose the one that suits you the best in the Online Trading Courses offered.