Basics of Stock Market Investing

6 Golden Rules Valid for Any Market

Basics of Stock Market Investing Rule 1 - Do the Research

Choosing the right stock can seem like a daunting task. Wall Street professionals do the necessary research and analysis and so should everyone who begins this journey.

Start your analysis by checking a company's earnings, profit margin, and revenue growth. Then it becomes possible to integrate the technical analysis with the fundamental and quantitative ones. This way you can get enough insight and make sensible market decisions.

Technical analysis, unlike fundamental analysis, which attempts to assess the value of a stock based on business results such as sales and earnings, focuses on analyzing price and volume movements.

Fundamental analysis includes studying everything that can affect the value of the stock, such as the state of the economy, industry conditions and the effectiveness of the company's management. The ultimate goal is to determine a number that an investor can compare to a stock's current price to see if the stock is undervalued or overvalued by other investors.

Quantitative analysis uses mathematical and statistical modeling, measurement, and research to understand behavior and is applied to measurement, performance appraisal, valuation of a financial instrument, and forecasting of real-world events.

Rule 2 - Be Forward-looking

Don't look at what's happening now. Investors are always forward-looking. By studying a company's momentum and how it interacts with its competitors, they invest now for what will happen next. If you're looking at what's happening now or looking to jump on the bandwagon of an investment that has already made short-term gains, you've most likely missed the big move. You better find the next big winner, but always look at the big companies that have a long track record of steady growth.

Rule 3 - Have Your Credo

A universal investment rule is diversification. While diversification is undoubtedly a wise rule, it can also decrease your profits when one of your choices makes a big move while others don't. Earning on the market also implies taking somewhat bigger risks, but always on the basis of in-depth research. Don't be afraid to take action when you believe your research is pointing to a real winner.

Rule 4 - Be Distrustful

When investing, never take it personally. Have you ever received advice from a trusted friend and after investing according to that advice, have you lost money? There is only one piece of advice to act on - your comprehensive research based on facts and not opinions, obtained from reliable sources. Other tips may be considered, but they shouldn't be the most important reason to commit money.

Rule 5 - Let Winners Run

Don't sell at the first sign of profit. This is a mistake that many unprepared investors make. Let winning trades take place. Secondly, don't let a losing trade getaway. It is not necessary to be right most of the time. What is most important is to let a winning trade work and get out of a losing trade quickly. If you follow this rule, the money you make on winning trades will far outweigh the losing trades.

This advice is offered by many, but unfortunately followed by few. In fact, it is more difficult than it may seem. Too many investors tend to take away their profits early for fear that they will be lost. Likewise, the same traders also tend to hold losing positions in the hope that they will recover. Trading is a difficult skill to master and traders can be successful only if they are very knowledgeable about the markets they operate in.

Rule 6 - Patience is Crucial

What many of the best investors do to accumulate their wealth? They keep their investments. Investors who have strong convictions and have done research are able to hold out for long periods of time, passing the tests of markets in times of crisis, uncertainty and instability.

If you want to acquire the necessary knowledge to become a professional investor in all markets and you don't just want to settle for the basics of stock market investing, check out here. This practical knowledge will offer you the profession of a Certified Investment Consultant, which is a very respected and highly paid profession of the future. People are, and will be more and more in need of investment advice.