So, you’ve made the decision to trade stocks. Fantastic! But now, you have to choose your stocks, which isn’t as simple as you might think.
It’s like standing in front of a huge wedding buffet that has everything from elevated French hors d’oeuvres to sticky hoisin ribs—countless options – hard choices.
Unlike the buffet situation, there is a massive advantage in picking stocks: you have all the time you need to decide smartly. There is no hurry and no cause for distress; stocks are there forever – unlike the very popular Caviar canapés.
There are several tips that experienced traders will give beginners on choosing the winning stocks. However, it’s up to you to decide which ones fit your style and trading perspective.
Let’s explore the best practices for cherry-picking your stocks.
“Eeny, meeny, miny, moe, catch a share by the toe”
Set your trading goals: Building a trading plan based on SMART (Specific, Measurable, Achievable, Relevant, Time-Bound) goals will help you decide what you want and stick with it.
Inform your decision: Do your homework and learn all about stocks’ fundamentals. How does stock trading work? Which stocks are worth the investment in time and money? Explore news and trends and tried-and-true rules and strategies.
Pick an industry: Is healthcare what piques your interest? What about telecom or technology? The stock market consists of 11 (or 12, depending on who you ask) sectors/industries. Choose your favourite, then learn the industry’s leaders, trends and strengths.
Diversify your portfolio: While picking a specific industry may help you at the beginning of your trading journey, you should not forget that picking stocks from different countries and risk profiles (from safe blue-chip stocks to more aggressive options) may help you reduce the risk of holding specific assets. Also, bear in mind that trading experts suggest that your portfolio may contain low percentages of international securities.
Pick competitive companies: Choose companies that consistently beat the stock market and its peers. Explore how the company treats its dividends, its debt-to-equity ratio in line with the industry, and its long-term strength and stability. Some ticker symbols may be more attractive than others, but at the end of the day, only the most attractive will win.
Manage your risk: Build up stock positions with a minimum risk, and plan ahead for rainy days. Invest while taking into consideration a margin of safety. Remember that you should not invest money if you may need it within the next few days, months or even years.
Manage your emotions: Don’t overdo it. Celebrate your wins and embrace your losses. Learning how to control your emotions while trading is complex and needs self-discipline and openness. When you feel more confident with trading, you will then find it easier to identify psychological trading patterns and master the art of emotional control.
All in all, trading stocks needs personal growth and building a solid base. At Eurotrader, we empower, educate and make it easy for everyone to get their trade on. That’s why we offer a series of beginner’s guides to choose from. How about introducing yourself to stocks and learning the ropes?