One of the greatest ways to set yourself up for financial freedom is through the stock market. With a little bit of luck and a lot of hard work, you could potentially make millions of dollars. Conversely, if you do not approach the stock market correctly, you could potentially lose major investments of money.
The stock market itself can seem complicated, but it comes down to a simple maxim; buy low, sell high. Seems simple enough, but how do you know when it is time to buy and when to cut loose?
The key to staying on top of the stock market—actually, anything really—is education. There exist many opportunities for someone to find out how the stock markets work and what types of trading you might encounter. This website alone offers countless opportunities to learn, for example, read Denny Jones' article explaining index options.
You should never enter any enterprise without first learning about it. Moreover, you should never stop learning once you start trading. The markets change frequently. To stay on top, you need to devour all the information you can take in.
The stock market is always fluctuating. Depending on the liquidity of your stocks, they could potentially be fluctuating by the minute. You must always keep your eye on the market and pay attention to sudden movements. Companies like eSignal offer the best stock trading software so that you can get real-time information and alerts while never missing a lucrative opportunity.
Remember you are an Investor
If you want to make sure you make the most of the stock market, you need to remind yourself that you are an investor, not a trader. Whereas, traders work within a short time frame, investors are in the market for the long haul. Readers interested in using their investments for retirement need to read another great article from Denny.
Investors expect, and thus, should not be worried when a stock takes a dip in value as it is a normal occurrence on the market. A trader will cut their losses too quickly and get out before they think it might get worse. Remember, stock markets do correct themselves drastically once every ten years or so. An investor knows that stocks bounce back; investors stay disciplined.
Diversify Your Portfolio
Never put all your cash into one investment vehicle or stock; that is a disaster waiting to happen. You need to spread out your investment capital. Diversification is the best way to mitigate losses and helps to reduce the volatility of your investment portfolio. The idea is a loss in one area will be set off or at least reduce losses in other areas.
Essentially, leverage is using borrowed money to make an investment. Now, if the stock price rises, you stand to make a lot of money, even after paying back the loan. On the other hand if the stock falls, you not only lose your investment, you still need to pay back the loan.
Leverage is a tool best used by advanced investors, who can afford taking a hit now and then. A beginning investor or a veteran trader uncomfortable with using anyone’s money other than their own should avoid leverage.
If you want to stay on top of the market, you need to be disciplined. Furthermore, you need to gather all the information you can and use it to your advantage and pay attention to what is going on around you.
Finally, as Heraclitus once said, “No [person] ever steps in the same river twice,” so does an investor never invests in the same market because it is always fluctuating.