Stock trading on the stock exchange
Traders are divided into aggressive and conservative. While the former choose assets with dynamic changes in value, the latter tend to work with the least risky instruments. So, for the majority, trading in shares seems to be an opportunity to earn money with a minimal chance of losing a deposit. Securities of this type are usually owned by large enterprises that rarely go bankrupt and are more likely to make a profit.
How to make money trading stocks
The choice in favor of trading shares on the exchange is due to several reasons. They are partly psychological since they provide the investor with tangible guarantees of return on investment. But there are also objective factors. For example, all securities have liquidity due to material goods: the real estate of the enterprise, its raw materials, and commodity reserves.
The following is also attractive:
- The share price does not directly depend on the value of currencies, commodity reserves (trading due to the lack of correlation is less dependent on interventions on currency pairs).
- A crisis in a country or in the world market may not affect individual companies (unlike national currencies).
- Investments in the assets of large companies are easier to predict than changes in the cryptocurrency and precious metals market.
You can learn how to trade stocks on the stock exchange from scratch using a demo account. The approach allows you to study the main trends, select an effective method of earning money. And this is without the risk of losing real money, all loss or profit remains virtual.
Testing trading strategies
Novice traders are more likely to seek conservative ways of making a profit. Creating and using a ready-made strategy are two different things. Therefore, they say that it is easy to start trading stocks on the stock market. But this does not mean that you can get down to business without training. In order to easily increase your deposit funds, it is recommended for the first test on demo accounts.
Moreover, virtual exchange trading in shares should be conducted in the same conditions that the trader plans to create for a real account. The choice of assets, the volume of purchase/sale – all activities of the investor are emulated based on the subsequent transition to real money. This approach drastically reduces the risk of errors.
How to reduce the risks of stock trading
The stock market carries the same risks as Forex or a crypto exchange. In addition to the wrong actions of the trader himself, trading in the stock market can bring losses due to external factors such as refusal to pay a profit. There are a number of rules, the observance of which reduces the risk of encountering such phenomena.
- It makes no sense to carry out transactions without market analysis – it is recommended to make it a rule to read forecasts, try to figure it out yourself.
- Before creating a large deposit, you should make sure of the broker's reliability: from reviews or from your own experience, working with a small amount.
- Even at the stage of working with a demo account, you need to practice using indicators, scripts, and automated advisors.
Sometimes traders try to study price tables and develop skills in calculating the profitability and risk of certain trades. All that remains is to collect a profitable investment portfolio and optimize it regularly.
Drawing up an investment portfolio
The key criterion for successful trading is the ability to diversify risks. Traders distribute investments among various assets. Moreover, they try to select such that there is no direct correlation between them. But if this condition is not met, then reciprocal transactions are made, allowing you to make money on any movement (even up, even down). When creating lessons on trading stocks for beginners, the emphasis is on building a whole portfolio.
Recommended structure: 70-80% of capital is allocated to stocks with low volatility, and the remaining 20-30% is invested in high-risk assets. The list of firms whose securities will be purchased depends on the size of the deposit and the value of the shares. Regional companies under similar conditions evaluate them lower than world-renowned corporations.
Ideally, the overall portfolio index should follow upward trends across all assets. In the event that any shares become cheaper, the trader replaces them with others. If the total profit allows, the composition can be left unchanged, compensating for the losses of some with the profit of others. On the first day of each month, it is desirable to have an estimated level of profitability.
Stock portfolio management techniques
When trading stocks of a world-renowned company, it is often known in advance under what events its liquidity increases and when it can decrease. This is more difficult to predict with small businesses. To simplify portfolio investment management, rebalancing is used (a mathematical method of regulating profitability).
The technique assumes compliance with the rules:
- At the time of creating an investment portfolio, each type of shares is allocated a share of the package (in percent).
- The check is carried out strictly according to the schedule (every month, quarter, six months).
- The calculations compare the number of investments in each asset taking into account the current quotes (in the investment currency).
- Any deviations from the original value must be corrected.
Shares that have fallen in price are bought up to the required amount, and those that have risen in price are sold. In quantitative terms, the balance of assets is constantly changing, calculations are carried out only in the currency of the deposit. With this approach, trading stocks on stock exchanges can become a tool of earning with a constant level of profit. Upon reaching the planned profit, the portfolio can be realized and formed anew (partially or completely).
Is it possible to simplify trading?
The maximum profit can be obtained by using the best stocks in terms of price and volatility in trading. With the manual method of opening deals, the trader has to constantly observe the market. The more active the changes in quotes, the more closely you need to monitor them. But there is a way out. If you have a proven trading strategy, it will be automated.
The procedure looks like this:
- a robot program is created using a manually checked algorithm;
- it connects to the charts in the terminal;
- the settings selected by the trader are entered.
It remains to observe the work of the advisor and, if necessary, correct it. The intervention of a trader may be needed if he decides to close any deals ahead of schedule, to exit the market completely to create a new portfolio. This makes it possible for dummies to trade stocks. After all, newcomers are often let down by emotions, irrational decisions. The robot does not know such concepts; it acts strictly within the framework of a given algorithm.
As the trader gains experience, it is possible to “put on the machine” trading operations in part. For example, you can choose tradable assets, order volumes, and other parameters yourself, and transfer routine operations to the software. For example, on closing deals after reaching a given level of profitability.