Many people have successfully made their fortune on the investment markets. Whether it’s stocks, shares, forex, indices, futures, or property, investing is very lucrative. Naturally, there is an element of risk here. For every penny you gain on the markets, there’s every chance you could lose it. So, how do some investors get it right every time? How exactly do you turn a small, initial investment into something much larger? Today, we’ll show you how to create a winning investment strategy.
- Know your markets
The first thing to understand is the mechanisms of the markets. There are so many options for fledgling investors, and it’s up to you to choose the right path. When you think of typical investing, you’re thinking of the stock market. You’re thinking of buying and selling shares on Wall Street. But, even here, there are different options. Then you have the foreign exchange (or forex) market. This revolves around the global trading of currency. You can invest in indices and futures. You can put your money in property or invest it in a business directly. If you’re to become a successful investor, you need to understand your chosen market inside out.
- Know what works
By their very nature, markets are often unpredictable. However, there are a general set of patterns and historical trends that you can learn from. By immersing yourself in stock market history, you can get a sense of how prices rise and fall. More importantly, you can learn why. Why does an IPO often plummet the second it hits the stock market, for example? How do quarterly financial statements affect stock prices? Start by researching the past behaviour of stocks you’re interested in. Then start a demo account, and watch how your stocks react to outside factors.
- “If you cannot understand it, don’t invest in it”
The first two paragraphs can ideally be summed up in this one sentence. It’s a quote from trading legend, Warren Buffett. He’s one of the most respected, and successful, investors on the planet. And, the advice here is very simple. Make sure you understand everything about the company you’re investing in. Who is the CEO? What are their plans for the future? What are their most recent quarterly results? If you don’t understand it, don’t put your money into it!
- Keep a trade journal
Once you start investing (ideally on a demo account first), keep a trade diary or journal. Write down how your shares reacted over time. What caused them to rise, what caused them to dip? What triggered you to buy them, and what compelled you to sell them at a particular time? How much did they rise and fall? You should even write down how you felt at the time. What were your emotions telling you? Were you worried? Were you over-excited? The more you know about the trades and yourself, the better investor you become.
- Understand global events and their effect on the market
One of the biggest factors on all investment prices is the global news cycle. What big events are taking place that could have an effect on the market? Stay up to date with current events in business, and learn to predict their subsequent effect. For example, how does China’s current economic slump effect Asian shares, and indeed US shares? How do these global events determine the rate of currency exchange in the forex markets?
- Keep emotion out of your trading
Emotion gets the better of every fledgling trader. We see shares plummet, and we get scared. We quickly cut our losses, and sell them on. But, by the very nature of the market, the tide rises again next week! Savvy investors know to ignore that worried feeling, and hold on (if it’s the right thing to do). They also know how to control their excitement when all their investments are rising. It’s very easy to change tactics because one stock is booming. Good investors keep a level head, and stick to their game plan.
- Stick to your plan
Our final piece of advice leads on from the last. Create a plan, and stick to it! The best traders play a long game. They set goals and targets for their money growth, and they invest to meet that target. They aren’t swayed by quick movements in the market. Savvy investors know that the market always rises over time. That means you can ride out all the bumps and dips if you play the long game.
That’s all for now folks! Heed our advice, and you’ll soon become a lucrative trader!
