SHARETIPSINFO >> Articles Directory >>Trading Education: The Best of Both Worlds
There are two completely different ways in which you can approach the stock market – you can either make long term investments or you can choose to make short term trading to get immediate profit. On the basis of these two trading styles stock market investors can be dived into two categories – the investors, who are in stock market for long term gains and the traders who are doing trading on daily basis. These two different groups of people have completely different ways to approach the stock market. Investors while investing for long term consider the large cap and blue chip companies and look at the stocks at a broader perspective and in a prolong time frame. On the other hands the traders have short term gains as their objective and look for the possibility of immediate price movement of the stocks. It is simply because of this difference in the objective that investors and traders follow completely unique ways of selecting stocks and determining their trading criteria. We are presenting both these techniques of approaching the stock market and you as a trader should choose your preferred way of investment on the basis of your objective.
Stock market – from investors’ point of view
Investors who invest in the stock market for long term have a two fold objective in their mind. Most of them want to increase their bottom line over the period of time by investing in the large cap and blue chip companies. Some of the investors also eye for the dividends that are given by the profit making companies to their existing stock holders. Whatever is the objective of the investor, when it is a long term investment – investors always choose to invest in the companies that have large market capitalization, history of making good profit year after year and in most cases leaders in their respective industries. Of course those investors, who are also eyeing the dividend, tend to invest in the dividend stocks – stocks that have given dividends in the past years. The most widely used and trusted method for choosing the stocks for long term investment is the fundamental analysis of the companies. Through fundamental analysis financial standing of a certain company is studied to predict future of that specific company in the business and of course in the stock market. There are certain parameters like earnings, debt and liquidity of the company that is judged to see how well is the company for long term investment. Generally it is wise to invest in the companies that have a history of posting good earning over the last few years, low debt, huge assets and of course large market capitalization.
Stock market – from traders’ point of view
From a traders point of view who capitalize on the regular ups and downs of stock prices at stock market to get immediate profit from regular trading, it is not the financial status or market capitalization of the company that matters. Rather they look for the stocks that are showing regular movement in the price level. As the daily traders it does not matter whether the price of the stock is rising or falling – as they can always short sell the stocks when the price of a certain stock is falling steadily. The factor that they look for is the daily price movement of the stock. There are so many factors that come into play while the traders pick up the stocks for trading – the basic method that is followed by the traders to select the stocks and to determine the optimum price level of the stocks is the technical analysis of the stocks. Through technical analysis traders try to speculate the future price movement of the stock by comparing the recent data with the past graph of price movement of that particular stock.
Merging the two worlds together
Now these are two different methods of investing in the stock market. It completely depends on your objective of stocks trading, your fund and your risk tolerance to decide which the best suited trading method is for you. But you can always take the best points of both these two methods. You can divide your fund to make some good long term investment while keeping a portion of your fund to do trade at stock market on daily basis to get a regular income.
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