Whether you are a new or old investor in stock market, these 50 useful points will make you a better stock market investor

Whether you are a new or old investor in stock market, these 50 useful points will make you a better stock market investor
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Stock market investments include purchase and sell of financial instruments such as shares of companies, mutual funds, bonds and derivatives. As these investments are dependent upon the market volatility, the earnings are not constant and risky. However, if there is no risk, there is no gain. Investments in stock markets are often highly rewarding. Before investing, a stock market investor should always analyse his/er risk appetite.

The risk appetite of a person depends upon some factors like age, source of regular earning, wealth in the portfolio and investment tenure. Generally, the age of a person is indirectly proportionate with risk appetite, which means younger people have more risk appetite as compared to the older ones. According to one’s risk appetite, one could design the portfolio for different investment options.

 Given below are some points that will help you take better decisions while investing in stock market:

  1. One needs to learn the tricks to become successful investors, which doesn’t happen overnight. It requires a lot of time and commitment
  2. Choose your stock brokerage firm wisely and compare its services with other brokerage firms in the market. Some of the parameters which you always consider while doing so include track record, discounts, brokerage, and advisory services
  3. At the beginning stage, you may bear some losses; always try to cut your losses at 8% below your purchase price.
  4. As a beginner, set up a cash account, not a margin account.
  5. Avoid more volatile types of investments, such as futures, options, and foreign stocks.
  6. Concentrate on a few, high-quality stocks. There’s no need to own twenty or more stocks.
  7. Don’t get emotionally attached with any of your stocks. Follow a set of buying and selling rules, and stick to those rules.
  8. Learning from the best stock market winners can guide you to tomorrow’s leaders.
  9. Always do a post-analysis of your stock market trades so that you can learn from your successes and mistakes.
  10. A combination of fundamental and technical investment styles is essential to pick winning stocks.
  11. Fundamental analysis looks at a company’s sales, earnings, profit margins earnings growth, and return on equity among other things. It helps you to be selectively dealing with quality stocks.
  12. Technical analysis involves reading a stock’s price, volume chart, business cycles, stock market cycles among others
  13. Strong sales and earnings are amongst the most important parameters one must look for while purchasing stocks.
  14. Buying a stock as it is coming out of a price consolidation area or base is crucial to making large gains.
  15. Always pick stocks from the leading industry groups or sectors. Many past market leaders were from the top industry groups and sectors.
  16. Many big winning stocks come from sectors such as Pharma and Health, IT, Auto, Banking, specialty retail, and leisure and entertainment.
  17. Volume is the actual number of shares traded by a stock.
  18. Stocks never go up by accident. A stock suddenly going up means there must be some large buying from big investors such as FIIs, mutual funds and pension funds.
  19. “Pivot point” is nothing but the optimal buying point of any stock.
  20. If you intend to buy any stock at its pivot point, don’t run after that stock more than 5% past its pivot point.
  21. On the day a stock breaks out, volume should increase by 50% or more above its average.
  22. Chart price and volume action frequently can help you recognize when a stock has reached its top and should be sold.
  23. A decrease in price on decreased volume means no significant selling.
  24. “Buy low and sell high” has become the trick of the yester years, “buy high and sell a lot higher” is what works in stock market these days.
  25. History always repeats itself in the stock market.
  26. Most big stock market leaders breaking out of a sound base will move up 20% in eight weeks or less from the pivot point. Never sell a stock which does this in four weeks or less.
  27. The general market is represented by leading market indices such as the S&P500, Dow Jones Industrials, and the NASDAQ Composite. Tracking the general market is the key as most stocks follow the trend of the general market.
  28. Ignore personal opinions about the market or your own intuitions. Base your decision on facts.
  29. A typical bear market will decline 20% to 25% from its peak price. A negative political or economic environment could cause a more severe decline.
  30. Knowing when to both buy a sell a stock is key for success.
  31. Most of the stocks follow the market trend and investor sentiment, more particularly at the time of corrections even if the stocks are very strong
  32. After four or five days of distribution within a two to three week period, the general market will normally trend downwards.
  33. At some point on the way down, the indices will attempt to rebound or rally. A rally is an attempt by a stock or the general market to turn up and advance in price after a period of decline.
  34. Bear markets create fear and uncertainty. When stocks hit bottom and turn up to begin the next bull market loaded with opportunities, most people simply don’t believe it.
  35. Most technical market indicators are of little value. Psychological indicators like the Put-Call ratio can help confirm changes in the market’s direction.
  36. Once you determine you are operating in an uptrending general market, you need to pick superior stocks.
  37. Potential winners will have strong earnings and sales growth, increasing profit margins and high return on equity (17% or more). The sector and the industry group has to be strong as well.
  38. Using a chart service can help you determine if the timing is right to buy a stock.
  39. There are two basic types of investors: growth stock investors and value investors.
  40. Growth investors seek companies with strong earnings and sales growth, superior profit margins, and a return on equity of over 17%.
  41. Value investors search for stocks that are undervalued and have low P/E ratios.
  42. When starting to invest, keep it simple. Only invest in domestic stocks or mutual funds.
  43. You get what you pay for in the market. Low-priced stocks are usually cheap for a good reason.
  44. Options are risky because investors do not only should know about the direction of the stock but also about have to know the time frame in which they believe the price will rise or fall.
  45. Wide diversification and asset allocation are not necessary. Concentrate your eggs in fewer baskets, know them well and watch them carefully.
  46. If you have less than Rs. 5,000 to invest, only own one or two stocks. If you have Rs.10,000-two or three stocks; Rs.25,000-three or four stocks; Rs.50,000-four or five stocks; and, within Rs.50,000 to Rs.100,000–own no more than six stocks.
  47. If you already own the maximum numbers of stocks buy and want to add a new stock to your portfolio, target to sell the least profitable stock to get some money for the new name.
  48. At the time of buying a stock, purchase only half of your desired position at the initial buy point. Add some more amount if the price increases 2%-3% above your first buy. Average up in price, never down.
  49. Don’t let yourself lose money after you already had a reasonable profit. Be reasonable at your expectations as well.
  50. Sell a stock if its earnings per share shows a major deceleration in growth for two quarters in a row.
Source: Stocktrader.com