#1 STOCK MARKET INVESTING: OPTION READING, DAY TRADING
30 Lessons to Get Started with the Right Mindset and Understanding Because of the continuous difficulties that have involved international stock exchanges in the recent months, many have begun to ask themselves the fateful question: "Is investing in shares still the best strategy to multiply my savings ?"
The financial markets in general can be an extraordinary opportunity: not only stocks but also cryptocurrencies and forex can give great satisfaction even if, however, it is necessary to have a preparation before going into rash choices.
In this chapter, we will go deep into the subject and discover the 30 golden lessons that every investor should know before entering the stock market.
1. Easy money is like Santa Claus: it does not exist! Whoever promises to quintuple your assets without sweating is no more than a seller of smoke.
Investing in the stock market is not a joke and to achieve the investment goals you have, set yourself to avoid risky securities and focus on something more stable, lasting, and profitable.
In the recipe for success, in addition to a serious knowledge of the stock markets, there is also the sentimental component. For those investing, there is no room for panic; instead, you need a lot of patience and even a bit of luck.
2. Gold and cash do not give interest
Everyone knows that cash does not disappear, but after the bizarre manoeuvres of the European Central Bank (which brought negative returns on the single currency), we can be even more certain that investing in cash does not create any interest.
Everyone knows that cash does not disappear, but after the bizarre manoeuvres of the European Central Bank (which brought negative returns on the single currency), we can be even more certain that investing in cash does not create any interest.
Everyone’s dream is to be able to accumulate the amount of money enough to enjoy a quiet retirement, but as the closer it gets to the time x, the small investor tends to panic.
This results in reckless choices to invest in cash or in commodities such as gold, which, although it proves to be more stable than fiat, cannot hold the same value forever. Just think that in the last lustre, the value of the most precious metal fell by 34.8%.
3. The ingredients for a winning strategy
One of the main factors of success on the stock exchange is sentiment: patience, foresight, and prudence are the three basic ingredients of winning strategies, but it is also true that a little risk never hurts.
If the money we have invested on a certain stock does not return, you should look around and find some slightly riskier but profitable activity, with the hope that an important injection of money into the markets can restart the economy by stimulating productivity and development.
4. Establish investment goals
Before starting to invest and embarking on a challenging and long path, you must have a clear mindset of where you want to go. It depends on personal aspirations, on the trust that one has for himself, and on many other factors.
However, the main choice is between protecting capital and making it grow. Under certain conditions, the stock exchange also lends itself to the speculative approach. One who wants to start could also establish concrete objectives such as buying a good or a service. In any case, the rule is always the same: to understand where you want to arrive.
5. Establish the degree of risk tolerance
This is probably the most important phase. The stock market is in fact extremely varied and allows numerous approaches, from the prudent and static to the dynamic and courageous.
This is why it is always good to establish one's degree of tolerance. Based on this decision, further choices will be made until the real investment is realized.
Investor profiles depend on personal characteristics and their economic situation. If you are a simple worker, do not sail in gold and maybe for those who invest their savings of a lifetime, it is good to give up any speculative ambitions. The degree of tolerance determines the risk that you intend to run and the strategy that will be adopted later.
6. Studying The information issue should not be forgotten.
The stock market is complex and structurally risky, so we need to be cautious. The risk is to lose capital in a short period of time. Therefore, it is necessary to undertake a training course that confers at least the theoretical tools.
The topic of the study should consist of both the investment modalities, how it is invested, and the economic environment in general. As for the sources, including paper texts, successful books and the internet, you are spoiled with choices. The studying activity, however, never abandons the investor, even when he has become an expert.
There is a pressing need not only to update continuously, but also to inquire about everything that gravitates around the securities in the portfolio.
7. Choose the long term Investing in the stock market should not be an activity of a few months or even a few years. It must be a continuous activity. It is only through patience and perseverance that makes it possible to make substantial profits.
This means that you need to build a long-term version, which might work at least for the next five years (even if ten are more suitable). This means that it is good not to give in to the temptation to sell the securities as soon as the prices start to fall. As the famous saying goes, "laugh well who laughs last."
8. Monitoring If you opt for a long-term vision, as you should, then it is essential to monitor the status of your investment.
Not everyone knows that control and monitoring begin before the investment itself. In particular, it is necessary to establish a benchmark (i.e. a yardstick) by means of which it is possible to really understand whether we are on the right path or not.
Finally, it is good to make a periodic comparison between the expected results and the real ones. At the beginning, there is a strong temptation to abandon oneself to discouragement, also because the results tend to arrive later in time. A general consideration can be made on the segment within which to operate. In fact, everything depends on risk tolerance.
If this is very low, you should address those segments that by their nature do not suffer from the crisis. The reference is to those goods whose consumption is practically mandatory, like food and pharmaceutical products.
Investing in pharmaceutical companies will not make you rich but it is a very useful asset to protect capital. Strangely enough, but up to a certain point, the high-tech segment (e.g. mobile phones, social networks, etc.) also play a similar role.
Investing in the stock market can be a business that can increase its capital. In addition to technical knowledge, we need some moral skills: patience, perseverance, lucidity, foresight.
All qualities that must be cultivated and that can make the difference. The opposite will never give good fruits especially with an approach based on imprudence, on haste, from the frenzy of profit.
9. Use the leverage What unfortunately many traders do not consider is investing in the stock market or trading online using leverage. To invest in the stock market with little money, it is necessary to deepen the study of this tool, which will allow us to expose our capital to a huge risk.
We recommend the use of leverage only on a reduced capital, carried out concurrently also with a rationalized use of stop loss and take profit. In addition, you must always have your budget under control using careful Money Management. Finally, before investing in the stock market you need to study the markets and all the financial instruments on which you want to invest in.
10. You do not need to be a finance guru to invest in the stock market !
Obviously, we are not telling you that the market should not be studied or that there must be a basis for training. Someone who applies himself and follows the markets, deepening the subject, will always know more than others.
So, we always recommend following the training path of your broker, which will allow you not to make mistakes throughout the investment process. Taking advantage of the online trading demo platforms, it is possible to simulate the investment and understand where mistakes are made and avoid them when investing with a real account.
11. Use only trusty brokers
We believe that the stock market is not a market for everyone but for a chosen few! Above all, we cannot recommend the stock exchange. The investments on the stock exchange cannot be studied, even the basics and training. In this case, it is better to let go of one's own, as it is not possible to rely only on luck.
Our advice is to stay away if you do not have and do not want to learn specific skills. If you do not have a basic education, you will lose all the savings you invest in less than a month. On the contrary, instead, we recommend investing in the stock market with online trading and regulated brokers.
This is because being regulated and being subjected to strict controls, they do not put capital at risk, and the broker will provide you with a fair and complete formation. Below you will find a complete list of regulated and authorized brokers to invest with.
12. Learn technical analysis
Technical analysis is the study of price trends with the use of graphs. The interest of a technical analyst is to look for the graphic configurations that are drawn by price movements.
The market trend is evaluated to understand possible future price movements.
The pure technical analysis is not based on any fundament of the underlying activity, but it applies a series of technical tools drawn on the chart in order to allow for future courses.
On the chart, price movements are usually represented by bars or candles, allowing price analysis in a certain period called 'timeframe'. On a candle, the body or the central part represents the difference between opening and closing in a given period.
The shadows (i.e. the top and bottom segments) represent the difference between the maximum and the minimum of the period considered and the opening or closing of the candle. We can have monthly, daily, 1 hour, 5 minutes or even shorter candles.
The different colours of the candles indicate a rise or fall in the period. Usually a green candle represents a rise in prices, which means that the closing price of the candle is higher than the opening one, while the red candle represents a drop.
The levels of the chart where prices find an obstacle are called 'levels of support or resistance'. A 'support' is the level at which a bearish price halts its downfall and potentially 'rebounds' up again.
The most significant support is repeatedly tested and becomes the level of support from a technical point of view. The 'resistance' is the opposite of the support.
It is the level at which a rising price finds an obstacle to rise further and instead shows a decline. Even a resistance tested several times takes on a higher strategic importance. When prices determine an important level of support but then violate it downwards, this level of support becomes an important area of resistance.
The same goes for a resistance that if violated on the upside, turns into a significant level of support. There are so many indicators used by technical analysts to try to predict the next price movements. One of the most used indicators is the 'simple moving average', which is calculated on a certain amount of price data and is mobile because it moves from period to period.
Given an average of a certain period, the most recent data is added each time, eliminating the last data in the series from the calculation. The moving average can be used as a support or dynamic resistance. The most used periods on the daily chart for the moving average are 50, 100, and 200.
If prices show an important uptrend, the moving average will be an important medium or short-term support; inversely if prices show a bearish trend, the average mobility will be a significant dynamic resistance.
13. Learn fundamental analysis Unlike the previous one, it is based on the study of the company and its reference market. In practice, it is based on balance sheet data, on management's ability and credibility, and on trends in the specific sector in which the company operates. In this case, one must also consider: value investing; growth investing; and investment.
All traders have a different investing style. Every trader has his own investment procedure and each has his own particular techniques, as well as his particular tricks and his particular "secrets.” However, do not be fooled by the strange idea of being able to learn how to invest by reading articles on the internet.
This is impossible. You can find excellent advice but not the magic formula. At most, you could clear your mind and give yourself a general orientation, but to get serious you need longer and more in-depth things.
14. Analyse the state of the market
Closely connected to the concept of technical analysis and fundamental analysis is the concept of analysis of the general market. It does not matter whether you are a professional investor or a beginner, this will be the most difficult step you need to understand. In practice, it is pure art applied to scientific instruments.
You must first understand and analyse the market for the sole purpose of formulating a plausible development scenario. This also means accumulating an enormous amount of data and statistics regarding the performance of the securities and developing the "sensitivity" necessary to choose the truly relevant ones.
If you put this into practice, you will also understand why many investors buy the shares of a particular company. At the same time, we always advise you to observe the products you have at home. Although this element may seem unusual, it is very important to understand that you have a direct knowledge of many products.
In practice, it will allow you to perform a quick and intuitive analysis of the financial performance of the manufacturing companies, comparing them with those of their competitors. Before investing you must reflect on the products examined.
For example, try to imagine the economic conditions for which you might decide to stop buying them or increase or decrease your stocks. This is a great exercise to get a feeling of what an average person needs and treats as “important.”
15. Create an investment plan A very important step.
You have to create an investment plan, but to do that you must first of all fully understand why you want to invest. You must know how much you can invest and how much you want to invest to achieve your goals. You must also have clear ideas about what your goals are.
To do this you could always use an Excel sheet or even a special tool to calculate how much you will have to spend to achieve your goals. Based on the income you can afford to invest, calculate the type of investment.
You cannot claim to want to get $ 10,000 from an investment, if what you can afford to invest in trading online or on the stock exchange or even in other systems, do not exceed 1000 euros. Everything must be proportionate.
Start small and build it up over time.
16. Understand Asset Location
Defined as the distribution of liquidity in the various investment instruments available should vary depending on the stage of life in which you are. This means that if you are young, the percentage of your investment portfolio relative to the shares will have to be higher.
On the contrary, if you have a solid and well-paid career, your job is like an obligation! You can use it in order to guarantee long-term income. Here is how all this allows you to allocate most of your financial portfolio in shares.
At the same time, you have to understand that if you have a job whose remuneration is not predictable, as in the case where you are self-employed, then you have to allocate most of your financial portfolio in more stable products.
In this case, it is better to invest in bonds, perhaps government bonds and not in shares. At the same time, however, you must consider that the actions allow a faster growth of your invested assets but such situations entail a greater risk.
17. Study the financial risk
Another element to take into consideration when choosing to invest in a stock exchange is financial risk. We could define it as the risk linked to the fact that investment can go wrong. This also assumes that the yield is lower than expected or may even go red. So be careful not to underestimate this element.
On the other hand, it is an element that is not easy to understand and accept. At the same time, it is not infrequent, and it is due to different dimensions that it is always good to know. The financial risk has in fact different facets.
In practice, it could be of different nature: Specific: linked to the performance of the single instrument we purchased; Systematic: linked to the oscillation of the financial market of the manager and linked to the skills of those who manage yours; Money related:
be it an investment fund manager, or a financial planner, or consultant to whom you have been entrusted; Market timing: the possibility of making mistakes when entering and / or leaving the market; Liquidity:
The possibility of having to sell a stock that has little market (it is called a little liquid title) and to have a low price; and lastly, Currency: when buying a security denominated in foreign currency, the yield will also depend on the ratio between the currency and the euro.
Analysed according to these elements, financial risk is a bit more complex than the simple possibility that things will go wrong. Understanding it and knowing how to manage these different risks can therefore shift the odds that things are going well in our favour.
18. Analyse and discover your risk tolerance
Another important element even before starting to invest in the stock market is to analyse one's risk appetite. All financial instruments are characterized by a different risk. For example, the price of a stock varies over time more than that of a bond. Unfortunately, this should not be considered as a reductive element.
The risk is much higher than it might seem at first. In fact, analysing a long-term time horizon and considering an investment in US stocks that have historically made very good progress and therefore considered as a safe investment, we must always consider the risk that we could incur the complete loss of capital invested for a joke of the market that you did not foresee.
Therefore, you must also consider these factors. Here, it is better to consider and analyse a more ambitious investment look. This means considering the investment portfolio and not the single instrument.
To date, there are different ways to make different instruments coexist; some of these are also quite risky. On the contrary, others can be considered less risky, and as such, reduces the overall risk of the investment.
19. Improve your Financial Intelligence
You are not born as a trader, but you can become one. Investors are not born like that, but they become one. How ?
By studying and applying. Here in this case, brokers offer you the right solution to your problem. Professional training courses, thanks to free video lessons such as those offered by the IQ Option broker, are dedicated entirely to the financial markets and online trading.
The financial competence takes into consideration two very important aspects: competence and time. These are very important elements that can really change the cards on the table and make a style of investment manageable and profitable that for others could become an anxiety-generating bloodbath.
Regarding the risk and its propensity to face it, the questions to be asked are 2. The first is inherent in the amount of time you can allocate to learn and therefore how much energy you are willing to devote to your investments; and The second is how anxious you are about money and economic security. In this case, it is better to let go of this whole investing idea.
20. Buy stocks of a company without competitors
Even this advice may seem improper, but in reality, it is very effective. For example, it is never advisable to invest in retail and automotive airlines. Generally, they are not considered good long-term investments. In most cases, these are commercial sectors in which competition is very high.
This means that if you look at their balance sheets, you can see how the profits are very low. In general, do not invest in companies that generate a large part of their turnover specifically when they have not shown profits and constant revenues even within a long period.
21. Keep yourself updated about the news in the market
Always try to find all possible information before buying any shares. Choose only companies that have a certain solidity. Choose those that have a price momentarily lower than their real value. This concept is the essence behind the investments. You buy low and sell high.
We consider it as the keystone of being disciplined in carrying out the researches, related market analyses, and in evaluating the performance of an investment by constantly checking it and making the necessary changes.
An example would be companies with an excellent brand, which can be a good investment option. Coca-Cola, Johnson & Johnson, Procter & Gamble, 3M and Exxon are all good examples.
22. Do not look at your portfolio every hour
This is because markets are volatile. So, you do not have to be influenced by the performance of world stock exchanges, because otherwise you may even be tempted to liquidate your positions too early and you will lose an excellent long-term investment opportunity.
You must also consider before buying the shares of a stock, questions such as: If the value of my shares were to go down, would I be more inclined to liquidate or buy more? If you decide to liquidate them, do not buy any other shares.
23. Be aware of your prejudices and do not allow the emotions to influence your decisions You must always believe in what you do and never get overwhelmed by emotion. Always believe in yourself and in the strategy behind your investments. Only in this way, you will be on your way to become a successful investor. All stock exchanges,
Like Wall Street, are focused on short-term investments. This is why it is difficult to predict possible future profits, in case they are projected in the long term. In order to calculate the target of your investment (the price at which to sell your positions), make forecasts with a time horizon of more than 10 years and update them over time using the DCF.
24. Invest in those companies that hold shareholders in high esteem In most cases, companies prefer to spend profits on buying a new personal jet for the CEO instead of paying dividends to shareholders.
A long-term management-oriented remuneration system, "stock-expensing", even if it is a prudent capital investment policy, a reliable dividend policy, a profit for growth stocks and the BVPS ("Book-Value-Per- Share ") are all indicators of a company oriented towards its shareholders.
25. Try out "paper trading" In this case, it is a simulation of investments.
In practice, this tool keeps track of the price of the shares and of all of your purchase and sale transactions, as if you were actually operating them on the market. At the same time, you can check your investments if they have generated a profit or not.
Once you have identified a reliable and profitable strategy and you feel comfortable with the natural functioning of the market, you can move on to the real operational phase.
Finally, remember that you are not buying and selling worthless pieces of paper; the price rises and falls over time; you are buying shares in real companies. Your decision to buy the shares of a particular company should be influenced only by two factors: the economic soundness of the company and the price of its shares.
26. Focus your thoughts
When analysing the market, you should always try to formulate a plausible development scenario and consequently identify the good securities to invest in. We are sure that this passage serves by providing some forecasts on some specific areas.
An example would be the trend in interest rates and inflation, if not the way in which these variables can affect the yield of fixed-rate financial products or other assets. At the same time, when interest rates are low, it could be expected that consumers and businesses can access cash and credit more easily.
In practice, all this means that people have more money to use for their purchases and therefore tend to buy more. At the same time, companies, thanks to higher revenues, will be able to invest with the aim of expanding their activities. On the contrary, the opposite happens in the stock market; low interest rates lead to an increase in the price of equities.
At the same time, a high interest rate generates a decrease in the value of the shares. At a time when interest rates are high, investing becomes much more expensive. So, you could try to invest in shares that offer a better return for you but are not that heavy for consumers.
A good example could be a bank's shares.
If you invest on the shares of a Bank X because the interest rates are high for you, you must also consider the interest rates that are applied to those who ask for a mortgage, for example. In this case, an interest rate for a high mute will soon make Bank shares collapse because it is not convenient for the lender.
Always evaluate all factors then. In short, consumers spend less and companies have less liquidity for investments and therefore there is a slowdown in economic growth or even a stalemate.
27. Create a wish list In order to be able to establish your financial goals, you must always have a precise idea of the things or experiences you wish to possess. You can always choose only what you want to experience in life, and for which you need to earn money. You must have a list of everything you want to get from this investment and then work out a line-up to guarantee your goals.
28. Diversify your portfolio
Investors with experience like Warren Buffett recommend diversifying their investments. A choice that serves to manage risks in a better way, as do the most prudent that focus on companies in different industries and in different countries, hoping that a bad event does not damage all their titles: "Imagine owning five different companies.
At the end of the year the company A and B performed well and increased the value of the shares by 25%. C and D instead increased by 10%. While E was the unlucky and ended up in liquidation. In this case the diversification strategy helps you recover the losses of your total investment.
29. Understand the main financial instruments
Among the many solutions that are available to those who intend to invest, we want to talk about: Forex, binary options, ETFs, and commodities. Proceeding by order, we clarify how Forex investments work. It is the largest market in the world today.
Although it is simple to deposit and therefore invest in the ratio of currencies, it is certainly known that returns are so high as the same measure of losses. It is for this reason that experts are always advised to take advantage of the demos for general learning before proceeding with the use of real money.
In any case, it is our advice to beginners to focus only on the performance of a currency pair, remembering to include the stop loss in the open position to avoid too large losses. Regarding investments in binary options, these are available to anyone, like the previous solution, provided that some attention is always paid in these circumstances.
This investment system concerns the launch of forecasts aimed at the performance of a certain security over a given period of time. It is expected that the course will sometimes be positive or negative and it will depend on the trader who can go from a minimum of 60 seconds up to months.
If the forecast is correct, there will be rather interesting profits. Even here, in order not to face unpleasant surprises, the same goes for the previous type of investment.
The ETF, those funds listed in real time that we mentioned, which go to replicate the index of a certain basket of securities, allow you to invest even with small amounts at lower costs than traditional funds.
With these you can trade on a wide variety of indices such as emerging markets, entire geographical areas, individual states, listed companies and more.
The advantages of investing using ETFs reside not only in their convenience, in being very liquid and tradable like equities, but also in the respective assets independent of the issuer.
30. Consider it a serious business
I believe that anyone can learn to trade options, currencies (Forex), commodities or cryptocurrencies. In the same way, I am convinced that with this system you can become financially free.
But it must be approached as a serious business. Let me ask you a question: how much did you study or work to achieve the experience you have in your current job ?
I imagine we are talking about several years and still thousands of hours of study and practice. Trading is not different. When trading, you compete against a lot of people who do it by profession; you must therefore have humility, work, perseverance, intelligence and method.
If you really apply, in a few months you can decide to give up your job because you can earn a lot of money with something that requires commitment and constancy, but without being stressed or having to spend all day on the trading sites.