Trading Stocks: What To Consider And Take Care Of?

Posted on Nov 28 2013 - 1:23am by Jim Stonner

Stock Market

Stock market trading is an activity that can bring huge profits or entail large losses, depending on the trader’s experience, knowledge and competency. Trading stocks implies, besides the common elements of technical analyze used with other instruments like currencies or commodities, an in depth knowledge and research concerning the stocks you want to trade with and their related industry. If trading commodities or Forex involves macroeconomics, trading stocks involves also microeconomics and supplementary data, increased risk and attention.

Do your homework. After getting familiar with the markets and choosing the stocks you want to invest in, and after identifying the way those stocks evolve and which elements are they sensible to, you have to be permanently informed with the latest news regarding those companies and their corresponding industries. The markets you invest in need permanent attention and up to date information. You have also to read, verify and correctly understand in their context the annual reports of the target companies, the files they reported to SEC. It’s helpful in order to identify in due time potential problems that might appear. Base your research on reliable sources of information regarding investments like: Bloomberg, Wall Street Journal, Forbes, or specialized agencies reports like Standard and Poor’s, Moody’s.

Take your time and make in depth research concerning the companies you want to invest in. Make proper investigation regarding their finances, be convinced that their data is concluding and indicates a healthy situation. Otherwise reconsider your intention. Take a close look to those companies earning, debts, equity and sales. Earnings, equity and sales should be always improving while debts should decrease. Also pay attention to the return on investment, return on equity, price earnings ratio, total debt to total assets, total earnings. All these elements will create a complete and concrete image of the position the implied company has.

Overview the industry evolution and its trends. The industry and the products the company is providing are also important; investment safe options are always those products that most people use and are in continuous need for the humans, not only the flavor of the moment (the in vogue stocks that have fulminate rising, because an even more fulminate decrease might interfere).  Some of the products that we all constantly need are: oil, gas, food, pharmacy products, some tech.

Your imperative goal should be the long term performance of the respective stock. Slow gains in longer periods of time are safer. Be conservative, start with and keep in your portfolio “blue chip” stocks, meaning stocks that have proven performance, great records and established reputation like: IBM, Apple, Procter and Gamble or Pfizer. Of course giants can collapse also, but it doesn’t happen very often, nor does the first start up that seem to have great future will ever be the next Microsoft.

Assume safe options and make good decisions in due time in order to have long life in the markets. A good decision in the right moment is better than a perfect decision made too late.

Photo Credit: Flickr/Iman Mosaad

About the Author

Article contributed by Jim Stonner, technical analyst and writer for QuantShare. A technical/fundamental analysis software for serious traders.