Bank of England base rates are at a record low. If you’ve taken the time to learn about personal finance, you’ll know there are better places for your savings. More and more people are turning to the stock market.
Media coverage of the fluctuations in GameStop shares has led to the impression that investing blindly with little regard for business fundamentals can allow you to multiply your wealth. This isn’t the case. The volatility of so-called meme stocks like GameStop can leave you open to taking potentially massive losses.
Don’t get enamored with promises of easy profits. Pump and dump schemes peddled by Twitter gurus have robbed naïve investors of their life savings. Make sure you take the time to do your due diligence before opening a position in any stock – regardless of your approach to trading. Setting stop losses on all your investments prevents you from getting saddled with tremendous losses.
With a consistent strategy, discipline, and robust research, there is real money to be made. And if like so many others, you’re looking into financial trading as a source of income, you need to decide on an approach to take. We’ve detailed three of the most common strategies traders to use to make money.
Day trading is typically the reserve of professional, full-time traders but the increased accessibility of the stock market has led to an influx of stay-at-home traders hoping to make a killing. Day traders look to harness changes in the price of a stock within the space of a single day to turn a profit. By opening and closing their positions before the close of the stock market on any one day, they neutralize the possibility of being stung by overnight changes in their investments. It’s a savvy way of limiting your exposure to overnight risk.
Swing traders tend to start a position in a stock before holding it for a matter of days or months with hopes of their investment rising. They focus their attention on the volatility that comes with the end of a trend in the stock market. Primarily using technical analysis, they try to identify where the price of a stock is likely to move next, enter a position, and then attempt to capture a chunk of the profits when it does move.
Successful traders like Warren Buffett and Jack Bogle favor a buy-and-hold approach to investing. They’ve both accumulated almost unimaginable sums of wealth utilizing this method and they have thousands of acolytes around the world attempting to follow in their footsteps. Position traders open a position in a company and hold it for a number of years. Typically, position traders leave their money in for at least five years.
They identify promising companies and wait for them to grow over time. Part of the popularity of this approach to trading is the ability to simply set it and forget it. Feverishly monitoring stock prices can be an unhealthy way to live – with your mood going up and down in tandem with your investments. Leaving your investment untouched for at least five years also allows you to wait out any volatility in the market. Even if the market was to crash, waiting five years should be long enough for the market to return to at least pre-crash levels.
Being a successful trader requires hours and hours of research and practice. Take the time to learn as much as you can about investing before taking the plunge yourself.