7 tips for trading stocks
Are you a beginner investor? Use these 7 stock trading tips to help you get started on your investment journey.
Trading stocks doesn’t need to be complicated, but there are some good ways to protect yourself from some of the risks and avoid getting panicked when you see the stock market in trouble. Try to see share trading as mixing together a little bit of everything, but slightly more of the things you really love. We’ve pulled together some share trading tips to help you get the best results and enjoy investing without pulling your hair out.
1. Choose investments that you’d be proud of
Some investors spend a great deal of time trying to time the market, and as a result might end up invested in companies they might not align with morally, such tobacco manufacturers or large oil companies. Try to invest in companies that you’re proud of — imagine you’re going to a dinner party with your in-laws or your grandparents, would you be proud to let them know what you’ve bought shares in?
If you like what a company is doing, buy shares. When you stop liking what they’re doing, sell your shares.
2. Consider blue chip stocks
Blue chip stocks are the shares of companies that are high-value and tend to be reliable. Adding some blue chips to your portfolio can help with diversification. These stocks might also pay dividends, which can be reinvested.
3. Invest in stocks that pay dividends
A dividend is when a company decides to share some of its profits with its shareholders. You’ll have to invest in the share before the ex-dividend date in order to receive the dividend, which is often published in any press releases from the company or within company research with your chosen provider. You receive a dividend of a certain amount per share owned — if you own a fraction of a share, you get a fraction of the dividend.
4. Stay well diversified
Diversification is one of the key ways to curb the risks involved in investing. Try to spread your money across several countries, sectors and investment types. You can also mix up riskier shares, such as new IPOs (initial public offerings) and low market cap companies, with “safer” ones, such as blue chip companies.
5. Invest long term
Investing long term can benefit you in a couple of ways. Firstly, it’s important not to get too tied up in the market when it’s on a downhill trajectory, as a long term investor will hopefully see the market correct itself over time. An investing strategy that’s popular when markets are volatile is “dollar cost averaging“. The idea is that you invest a regular amount into your portfolio each month, despite how the market is behaving. Sometimes you’ll get a low price, when the market is dropping, and sometimes you’ll pay a little over the odds, when the market is doing well. Theoretically, this averages out, so you don’t need to put too much effort into timing the market.
6. Keep an eye on trending stocks
Trending stocks can tell you a little bit about what investors are interested in, and where you might want to divert your attention. For example, when legislation changed around cannabis use, we saw investors take interest in cannabis stocks. Shares of companies that had been closed for some time during the COVID-19 pandemic were popular when announcements were made that stores could open up and air travel could resume, as investors were expecting these companies to see a share price increase.
7. Be prepared to pivot for major economic events
The coronavirus pandemic and the invasion of Ukraine by Russia have both shaken up the markets quite considerably — investors have had to change their stance by moving stocks into “safer” sectors, or by removing Russian companies from their portfolios. If you have a good understanding of the companies you’re invested in, you should be able to figure out which moves to make if a major economic event were to happen. For example, investors piled into stocks like Zoom early on in the pandemic, leaving behind airline stocks and those in the hospitality industry.
Investing can be really exciting, especially once you find yourself trying to determine which direction stocks are moving in and why. It takes a little bit of time to understand how the stock market works, how to read charts and how to know when to sell, but the best way to learn is to get yourself in the middle of it, keep yourself up to date on current events and try to enjoy the ride.
Want to learn more? Check out our guide on how to buy stocks here.
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