The stock market can be confusing for many people. This has been especially true during the last few years since the markets have been so turbulent. There are some general guidelines, however, that can make selecting and trading stocks easier to understand. The following are 7 tips for choosing and buying stocks.
Before jumping in and buying stock it’s important to become as informed as possible regarding current stocks, stock market trends, and how the whole process works. Start out by studying the market indices. This includes the Dow Jones Industrial Averages, the S&P 500, and the Nasdaq.
It’s never a good idea to buy a stock simply because a friend or a co-worker recommends it. Even if other people have made money on the stock it may no longer be a good deal a few weeks or even a few days later. If at all possible you should avoid buying or selling during desperate financial situations. This will almost always lead to paying too much or selling at a loss.
If you’re going to be an online day trader this means you’ll close out every trade by the end of each day. You can also focus on weekly or monthly trading. Day trading means you’ll be required to sit at the computer for several hours at a time. Long term trading normally won’t require as much day to day attention. If you use a broker, find one you feel comfortable with and shares your overall trading philosophy.
This takes some finesse since stock prices fluctuate so easily. There are a few ways, however, to determine if a stock is currently over or undervalued. One is by estimating the future prospects of the company. Another way is to compare the price of the stock to those of other companies that provide similar products and are equal in size.
Once you’ve decided what type of stock you’re interested in buying and what you think the general value is it’s important to determine how much you’re willing to pay for it. Set a general price range for buying the stock. This needs to be balanced against how high you think the stock may go so that you can eventually sell it for a profit.
This basically means don’t buy everything at once or sell everything at once. No matter how tempted you may be, the odds of selling or buying at just the right time to make the maximum profit are dramatically against you. Selling and buying in calculated increments will help you make a profit over time and will reduce your chance of any dramatic losses.
Prices often pop up right when the market opens and then start fading in a few hours. It’s recommended to buy about an hour after the market opens and about an hour before it closes in the afternoon. Selling is usually best right when the market opens and in the early afternoon, Eastern time.