I started following the stock market when I was 16 years old. Back then, I was a little kid trading in my father’s brokerage account learning what a stock, a mutual fund, and options where. Looking back, I gained a lot of experience trading back then because I learned many strategies of how to trade, when to trade, and different investment strategies. I have also spoken with many investors about trends they look for in stocks prior to buying a purchase. Here are three different trading strategies and ways you can play with the market.
Wall Street Trading
You know all those Wall street movies where traders are standing in a boiler room in wall street making trades. This method of trading is called Wall Street Trading or “Trading off the Street”. Essentially, the big players on wall street decide they want to sell/buy a certain commodity in huge quantities. As a given, any time a huge player makes a move on a stock, others are going to follow suit and make trades based of that trade.
People who trade in this way, are not looking to make long term investments. They are looking to make money very quickly based on prices of stocks and are not interested in usually the commodity they are trading. The only thing that interests them is what someone who has a lot of money is doing and how can I profit off their move.
I do not recommend going into Wall Street trading for novice investors. There is some value to day trading such that if you follow the market like a hawk, you can make tons and tons of money based on what others are doing. The cons though is if you make a mistake, you can “lose your shirt” and have nothing to show for your hard work.
Another group of investors spend most of their time practicing trend analysis. Trend analysis is essentially using mathematical models to predict how a certain commodity will perform in the future. This includes looking at median price ranges over certain periods of time and predicting if a stock will exceed or perform at the same levels. This also includes volatility of a stock and how it will perform over a period of time. The common factor with all trend analysis is that there is a fixed period of time where investors are looking to see how they can trade a certain commodity.
The traders and Wall Street traders are all day traders. Essentially, they make price predictions on stocks every single day and usually do not care for what they are trading. I honestly think that investing like this can take years and years of experience in understanding what you are doing. I wouldn’t recommend for any novice investor to go anywhere near trend analysis.
Another strategy some investors take is investing in stocks that pay out big dividends. Apple just announced yesterday that they are going to give out billions of dollars to investors in dividends. I actually recommend for most young investors to invest in dividend investing. Usually companies paying out dividends are established companies that have been around for a while and pay out consistently based on their earnings. These include consumer goods, energy, and industrial companies.
Investing in these types companies can help secure good long term investments and pay out consistent value every quarter. I earned about 100 shares of IBM while working there, and every single quarter, I receive a check for ~$100. It may not seem like a lot, but I make $400 a year off IBM stock for just owning the company.
Long Term Investing
Another strategy is simply investing in long term index and mutual funds that provide consistent returns. Currently, my 401(k) is invested in 3 index funds that invest in companies that are on the S&P 500 index. I have consistently made 8% off this investment over the past 10-12 years and have not lost a penny. This is a much better strategy for long term investing. If you don’t have a 401k, consider checking out a company like vanguard that is known for it’s low cost index funds.