Stock Market Trading - The Best Strategy For Trading On Stock Market

Stock exchange means an exchange where security trading is conducted by professional stock brokers.  A stock market or equity market is a place where the securites of listed companies are being traded at an agreed price which is arrived considering the various factors prevailing in the market. 

Most people view stock market investment as the best way to make huge incomes out of their saved money or raised capital.  But the problem is, you cannot possibly be a winner in every trade you  make.  Any trading strategy must leave room for some losses. There is no definite pattern as to how the result will turn out.   

So, for the priliminal understanding, if you buy 100 shares of company ‘X’ at the price of 100 $ per share, your investment cost 100,000 $. You can hold the shares and can sell it whenever you want it to sell.  Assume you want to sell it after one year, and by the time the share price of the company ‘X’ have gone upto 150$, you have made a profit of 50000 $ But it is also possible that the share price may fall after one year.  Assume the share price is only 75$  per share after one year, then you have lost 25000 $in your investment in stock market.  However, whether to sell or hold and when to sell the shares completely depend  upon your own decisions.

The basic strategies which proved most successful for short term say 2-5 days holding are as follows : 

• Go for one with the lowest risk return ratio.
• Make portfolios.  Do not invest your entire money in one stock.  Diversification is the best way to reduce risk element.
• Make sure your expected income exceeds the cost of investments, which normally comes as bid ask spread plus brokerage commission.
• Trade only in the stocks with highest growth probabilities and when the growth probabilities of the trading securities goes nearly average, switch over to the more profitable stocks
• A small daily profit can make large annual return.  Therefore develop a winning strategy and trade often.  Keep track of what is happening in the stock market even when you are not trading.

Buy and Hold Strategy

The important thing in the trading of stocks is that one should know when to hold on the shares and when to unload them. The best method for ultimately making money in stock market as per the financial experts is the ‘buy and hold strategy’.  The buy and hold strategy requires the investor to buy the stock and hold it over a long time. 

The rational behind this strategy is that, eventhough the market tend to change between ups and downs which results from numerous determinants, over the time stock market tends to push upwards. This results the long holdings of stocks ends up in value appreciation resulting profit which means the investors those who use the buy and hold strategy stand to make money over time.

However, even this strategy is not flawless.  There were some catastrophic stock market crashes of the past as a proof that investors can literally lose everything they have gained so far from the bull market being washed away completely with the effect of a bear market. 

Experts say that bear market materialize every five years and can easily eliminate the gains earned through bull markets.  So the investors sticking on to buy and hold strategy would do well to consider.  And this makes it necessary  to monitor market conditions and making changes only if it seems necessary even when they are planning for a long term holding.