Trading plan? What? Right. You don’t just get to log onto you computer and haphazardly choose a bunch of stocks to trade. Choosing stocks takes time, energy – effort. Choosing the wrong stock could quickly become detrimental to your financial well-being. Choosing stocks based on your educated assessments is a lot less risky (though still somewhat, as all trading is).
Considerations When Choosing Stocks
We’re going to assume you actually have a trading plan. If you don’t, you really have no business trading stocks. Take a step back, study the market some more, and write out an actual plan that includes the type of stocks you’ll trade (commodities, etc), your lifestyle needs, your entrance and exit strategies, the exact amount of money you’re looking to invest, and of course the actual stocks. There is a lot to consider, and the actual stock picks are just a small part of the overall equation.
When you are looking at stocks, you’ll want to consider – at a minimum – the ownership of the organization, the number of shares issued to the public, the share price, and the average daily volume. For example, companies that don’t have a lot of shares in the marketplace tend to be higher risks. So are stocks that trade at very low prices, like penny stocks. Stocks with little daily volume are harder to enter and exit, also posing a risk. This doesn’t mean you can’t take a chance (an educated chance) but these are things that must be considered very carefully.
Learning about the Companies
You do need to spend a little bit of time learning about the companies you want to invest in. It’s not all about the numbers, but the mindsets and past histories as well. Has the stock recently hit a new all-time or 52- week high? Is the company offering something that is new, fresh, and innovative to the marketplace – something that will intrigue investors and potential customers? What’s the past performance of the company? Is it new or established? Either way, what are the experience levels of the owners? A great idea could fail miserably if put in the wrong hands.
It’s also important to look at the activity the company is involved in. Are they preparing to announce their earnings? Are they preparing an announcement – is it expected or unexpected? Are there going to be announcements form major competitors, privately or at major industry conferences? These are all things that can impact the stocks you choose.
Confused? Don’t be. There’s a lot to learn. You can find a lot of information from bulls on wallstreet- classes, tutorials, etc – that will help you to move forward as you create your own trading plan. And remember – practice, on paper, is paramount to your future success.
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