Stock Trading Tips for Ordinary People
By now, you already know a thing or two about stock trading. They say that rich people invest in it and they become even richer. Truth be told, that is actually what they’re doing right now. Just examine the people in the world’s richest entrepreneurs list and you will find that one way of earning a lot of income is by trading some shares among the best stock broker.
I never actually gotten into stock trading until I turned 25. Since then, I’ve been trading very well, but the road is never smooth. I did a lot of mistakes as well but learning from them is key if you want to proceed and get rich by engaging in the stock market.
If you want to learn how to trade, here are some useful tips:
1. Always Think of the Long Term
The not-so-little secret when it comes to trading is actually the concept of “Buy and Hold”. You see, rookie traders often make the mistake of buying stocks and not letting it experience the ripeness so that they can get a huge ROI.
This is actually something that you should never follow. Always buy stocks with the intent that you hold on to it for a long time. The reason why you want to do this is so that you can take advantage of what is called the Compound Interest.
Every year, when you’re still holding on to your shares, it accrues some interest and you will get a higher portion of a company’s money. The longer you hold on to it, the bigger the interest will be.
2. Know What a Stock Actually is
Some people, believe it or not, really do not know what a stock is, especially when it comes to the stock market.
Buying a stock is actually owning a piece of a company or corporation. Once you bought some, you basically have a bit of ownership of a particular business.
Companies initiate an initial public offering where they sell some company stocks to potential investors. This is to raise capital to help grow their business. And, when their venture grows, so is the amount of cash they’re going to earn.
This is where you will earn money because companies will then give some dividends to you as compensation. Again, the longer you marinate your shares, the bigger your dividends would be.
3. Stay Away from High-Fliers
Stocks are volatile and you probably know by now that some of your shares can crash and burn depending on the company you’ve bought stocks from.
High-flying stocks are those shares that are sold by promising companies, but they’re quite risky in the sense that you can earn a lot of money, but because of its volatile nature, you might lose your investment as well.
I know it can be tempting, but as much as possible, always avoid high-fliers.
4. Do Not Buy High P/E Stocks
You’ve probably heard of the saying, “the bigger they are, the harder they fall”, right? That same principle can also be applied in stock trading.
There is a very important concept in the stock market called P/E which stands for Price/Earning ratio. It can get pretty technical, but the idea is that if you have a low P/E ratio, it means that you’re going to earn a lot more than you’ve invested.
Always avoid stocks with a high P/E ratio because you do not want to spend more just to earn less, right?
5. Stock Diversity is Key
Diversity is actually welcome in the stock market and it is something that you want to do if you want to become wealthy. The saying, “Never put all of your eggs in one basket” applies here for the simple reason that if a company stock crashes and burns, you still have plenty of “eggs” that will give you more fortune.