Stock Trading Strategy

"There are more mediocre people making money on Wall Street than any other place on earth", were the famous words of Jack Welch, ex-CEO of General Electric. Now the common question arises how one can make maximum profits out of stock markets? There are of course no specific guidelines or tutorials which can ensure your success as an investor in the stock market, yet sticking to the basic principles, gaining extensive knowledge of the stocks you are going to buy or sell, and a willingness to take risks, are the few points to remember in order to form a successful stock trading strategy.

There is no dearth of stock brokers for a newbie who wants to invest in stocks, but it is always better to have your own trading strategy when there is involvement of big bucks. For that, before you start investing in stocks, try to go through all the basics of the stock exchange and how the capital market works. Capital market which consists of both stock market and bond market, is where companies and governments raise money by security deposits. These deposits are then bought and sold by individuals or companies forming the base of stock trading. In the initial phase, you are bound to get baffled by jargons like Contagion Effect, bips, pips, Candlestick charts, etc. which are used in stock trading. But with the passage of time and efforts that you make, trying to understand companies' profiles and policies; you tend to become a better investor. This eventually helps you frame your own stock trading strategy.

Besides trading in stocks, traders also invest money in Forex trading which is about buying and selling currencies. When we are dealing with stock trading, depending on how safe we want to play and whether we can keep an eye on the running values of the share, we can trade on one of the following ways:

• Daily Based Trading: In such kind of trading, the trader buys and sells his stocks on the intra-day basis. In this case, he or his broker keeps an eye on the continuous flickering values of the share prices and the stocks are sold out at an optimum time on the same day.
• Delivery Based Trading: In this type of trading, the trader buys and keeps the shares in his stock. He might sell it on any given day when he thinks that the prices are optimum. This type of investment is good for reliable companies which show excellent results for a long period of time.

In a bullish market, where we see a constant rise in the price of stocks for a considerably long period of time, it is always advisable to set a target and time-frame in which you are willing to sell off all the stocks of a particular company doing really well. Suppose the stock market has been riding waves of profit from the last one month and you think the uptrend will continue for the next month, you should look out for stocks of the companies that you hold and which are making excellent profits. Then decide a time-frame and set a maximum price for the stock you intend to sell. If you hold 1000 shares of company X each at $10, set a price say $20 and give yourself a considerable time, say 30 days. It's always good, if you sell 50% to 60% of the stock of that particular company before the time-frame (if it is following the uptrend), but the price of each share is not close to your set target i.e. $20. After one month (i.e. after completion of your time frame or the price reaching $20, whichever is earlier), if the market suggests turbulence, try to part with maximum of the stock. It's better to avoid the risk in stock market strategy, if the resultant losses can make you start from scratch again.

In a bear market, when the market is showing downtrend for a prolonged time, one should try to add on to his stock, as the prices are lower as compared to the normal market scenario. Besides, he should also try and gather data for the companies in his stock and check out which ones will remain unaffected by this downtrend, in the long run. Other than this, one should also check out for the companies' share prices, which are going to show the continuous downfall and try to part with them. These studies can be made by going through the companies' annual reports, intra-day charts and their quarterly growth charts which every stock trader has access to. If you take a closer look, there are always companies which are not going through loss, even in the period of recession.

No doubt that 'greed' is an underlying principle for making money, but more the money involved, bigger the risk. You have to be greedy when it comes to trading in stock exchange, but you also have to decide when to stop, while framing your own strategy. It's always advisable not to trade with superficial knowledge and make yourself well aware of the company you are going to put your hard earned money in. Also keep a close watch on the country-specific government policies for the companies and be updated on the latest developments. All these basic points will surely help you with an excellent stock trading strategy, which in turn will provide flexibility to the ever-changing nature of the stock market.