When you buy a stock, your primary concern is whether the price will go up or down. But how do you know which direction to go? There are as many trading strategies as there are investors. Everyone has their own approach and methods for analyzing stocks. Some may see things you don’t, but that doesn’t make one person right and the other wrong. Everyone has different risk tolerances, time frames, and capital available to invest. Luckily, there is no “right” way to trade stocks – just some that work better than others in certain situations. Every investor must first understand their personal profile as a trader before developing a strategy for buying and selling stocks.
It May Be Good To Hold Or May Be Bad To Sell
The stock you buy today may be a great long-term investment or it may be a poor short-term investment. Different stocks have different characteristics and traits, so you have to understand each one and its potential to maximize your trading profits. For example, some stocks are volatile, which means they are subject to sudden and extreme price movements. Other stocks are more stable and less likely to see large price fluctuations. This can have a significant bearing on how you approach buying and selling those stocks.
Stop Loss: Take Out The Risk
The worst thing that can happen to you as an investor is to lose all your money. You can avoid this danger with a stop loss order. Stop loss orders are instructions to sell shares of stock at a specified price. For example, when you buy 100 shares of stock for ₹ 50 a share, you could place a stop loss order to sell the stock at ₹ 45 a share. If the stock falls below ₹ 45 a share, the order is automatically executed and the broker will sell 100 shares at ₹ 45. If the stock rises above ₹ 50, the order is not executed. You can sell a portion of the stock to minimize your loss. For example, you can sell a portion of the shares at ₹ 45, a portion at ₹ 40, and the rest at ₹ 35.
Buy And Hold: Long Term Investment
Some stocks are better to buy and hold for the long term. A long-term investment is one in which you hold onto the stock for several years. Depending on the stock, a long-term investment could be anywhere from six months to 10 years. A long-term investment is typically a blue chip or large cap stock. These are large, established companies whose stock is unlikely to take a significant plunge in the short term. Obvious examples include Tata, Bajaj Finance, Maruti, Wipro, dr Reddy, etc. These are large companies with crores of rupees in annual revenue that are unlikely to go out of business in the near future.
Swing Trading: Hitting While The Iron Is Hot
Swing trading is a strategy for buying stocks that looks for a major price change of about 10 to 15%. You buy stocks that have recently seen a large price increase and then sell them when they return to a normal price level. This strategy is best when you already have a portfolio of stocks you are holding for the long term. It can also be used as part of a trader’s portfolio that is designed to buy and sell stocks on a more frequent basis. Keep in mind that swing trading is not for everyone. It is not an easy strategy to maintain because it takes constant monitoring of stocks to see when to buy and sell. This is one of the riskiest trading strategies because it is dependent on one or two stocks having a significant price increase without a corresponding drop.
Summary
There are many different trading strategies, but they all boil down to buying low and selling high. The best way to do this is to thoroughly research stocks before you buy them. This gives you a better understanding of the company, its product or service, and its valuation so you know when it is a good time to buy. Most trading strategies work most of the time, but they don’t work all the time. The best way to maximize your gains as an investor is to understand your trading style, find stocks that fit that profile, and then stick with your game plan.
