June 4: Using Stock Trading Strategies

by David Jenyns on June 4, 2007

As with any difficult activity, the best way to be successful is to have several strategies in place to ensure that failure is not an option. Because stock trading is such a delicate issue that deals with your money, it is extremely important to have some active strategies in order to know when to trade your purchased stocks. Your ultimate goal is to make money in order to carry out your financial future in a way that you can feel satisfied. By strategically working the following strategies for stock trading, you are able to ensure complete satisfaction with your money.

As an investor, do not feel as if you have to become deeply analytical researching into wee hours of the night about stocks of certain companies as you spend you time drenched in a monsoon of financial statements, spreadsheets, etc. For some people, this complicated, analytical strategy works best, however, it is not the only strategy in place to successful investing with stocks. An easier strategy is the “Pyramid Scheme” which includes three points that actively work together in order to make all individuals successful in trading stocks.

The Pyramid Scheme

Step One: Keep your number of targets small and make sure you don’t set your expectations too high. For example, you feel that a safe and profitable stock investment would be in snack foods. So, you decided to pick the market leader in snack foods NOT the snack food company with the highest prices to trade stocks. This ensures success for the long-term and not just a “get rich” fast strategy.

Step Two: Invest in growth industries, one in which will continue to grow for hundreds of years to ensure that you receive a high return on your investment. For example, let’s say that you own 1,000 stocks in a pet food company. It is logical to say that pet food itself is a growth market; however, the particular company in which you bought shares may go out of business tomorrow. So, you decide to trade your shares for a more stable type of business, such as computers. Because computers are the way of our future, it is logical to sell your 1,000 shares in pet food and purchase 1,000 shares in a computer company, such as Dell to ensure growth on your initial investment.

Step Three: Invest in market leaders, companies that seem to have a monopoly in their industry, even if their stocks seem over priced. For example, Microsoft has dominance in the software industry to the point that they are in no danger of losing their market dominance, which simply means more money for you if you choose to invest in a company such as this.

With the “Pyramid Scheme” you can rest assured knowing that all three of these simple steps work together to form a reliable strategy in which to work with in order to trade stocks.

Another equally as effective strategy for trading stocks is known as the “Basic Strategy” in which you vow to invest in an even number of shares in an even dollar amount. The reason you must invest in an equal number of shares is because no one can accurately predict which stocks will increase in value, therefore, you are investing on emotion. For example, Stock X is priced at $100 per share so you decide to purchase 10 shares for $1,000. However, Stock Y is only $40 per share, so you decided to purchase 100 shares for a total of $4,000. In the meantime, Stock X goes up $10 so you have just earned $100, but Stock Y goes down $2.00 so you loose $200 which means you are in the red $100. Therefore, you must trade in Stock Y for more of Stock X in order to make a return on your investment.

There are thousands upon thousands of stock trading strategies currently in use, some are free and some you must purchase from certain companies claiming to have the way to make a 1,000% return on investment. It is totally your choice as to what strategy, if any you choose to incorporate into your stock trading. The healthiest advice toward stock trading strategies is to always use your common sense when dealing with your money.

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