For decades, the stock market has created successful and wealthy individuals yet, at the same time, have also produced considerable losses for inexperienced investors. Distilling it to its core fundamentals will make it simpler for you to deal with both winning and losing trades. But how does one simplify something that has been around for decades? With the large quantity of information regarding technical strategies and investment tools that is available to the modern investor, it can be easy to get sidetracked, confused, and frustrated over time. Here are five simple steps to simplifying the stock market.
Choose a Strategy
Virtually every strategy in investing has been thought of and used, and it’s all out there online or in a book. Choosing one that you feel comfortable with is essential to avoiding any psychological or emotional tension while using it. For instance, if a moving average crossover strategy imposes too great of a risk per trade, it may be difficult to follow through, potentially leading to over-trading or doubling down on losing positions. Strategies are generally pigeonholed into technical, fundamental, and market sentiment, but be sure to explore more specific approaches and their respective parameters.
Set it and Leave
Every broker and investment platform has a Market/Limit Order feature whereby you can set an auto buy or sell order at a specific price level. If the instrument’s price hits that price level within the predetermined time limit, it automatically opens the position without you having to monitor it on your computer screen. This approach of setting and leaving future trade orders can work especially well for long-term investors who can see potential inflection points, using longer time frames like daily or weekly charts. Doing so can relieve you of the emotional burden of having to wait for a trade to happen.
Avoid Herd Mentality
Copying the trade ideas of other people or investing in instruments you don’t understand just because some Wall Street messiah said so is not prudent investing nor is it an acceptable means of simplifying your whole investment venture. Avoid the herd mentality and try to train a thought process of your own when it comes to selecting good quality stocks to invest in. This way, you also avoid being dependent on a certain investor or investing group, which could backfire when they stop providing any investment advice or tradable signals.
Build Your Tool Kit
The main cause of failure in stock investing, or any other type of investing for that matter, is that they don’t have the necessary tools to succeed. This isn’t just about the computer or broker you use, but also the education and charts that power your investment ideas and plans. Build your tool kit from the ground up, carefully selecting the ones that complement your strategy and give you a wider vision of what’s really happening in the market. Another powerful tool you can learn and master are KPI dashboards, which collects and organizes key metrics so you can better visualize the performance of companies whose stocks you are planning to buy or sell.
Buy What You Know
Buy stocks of companies that you know and understand. Don’t just buy into a stock because it’s receiving some media hype. Pump and dump schemes are still very much alive and you’ll want to avoid buying into a hot stock only for it to drop sharply the following day. If you understand a company’s product or service line and has at least some basic knowledge of the management team driving it from behind, you’ll be able to objectively build a strong case as to why you should be buying or selling the stock.
Work towards implementing these steps to your investing game. It will take time to follow each step but it’s perhaps the best thing you can do for your capital. Not only do these steps simplify your stock-picking process, but it also maximizes gains and minimizes losses over time.
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This should be required reading for anyone managing their own investments.