Investing in stocks has the potential for steady profits over the years in excess of inflation and well above the returns of bonds and bank accounts. Investing in stocks is different than trading stocks. Investing in stocks means picking a promising company, buying its stock, and making money from dividends and capital gains over a period of time. Trading stocks means buying and selling stocks in order to make money on temporary stock market moves.
Investing in stocks starts with learning basic stock information such as what shares are and how a company comes to be listed on a stock exchange. Then one needs to learn the basics of stock market investing such as where and how to buy stocks, paying commissions, and the difference between stock appreciation and dividends.
Investing in stocks requires that one either hand over the management of ones stocks to a stock broker or develop an investing strategy. Even if one has a broker or portfolio manager who is picking stocks and bonds for investment it is wise to understand the stock market and just what the portfolio manager is doing and why.
Once a person is grounded in the facts about the stock market it is time to learn about when and how to buy stocks. Successful investing in stocks has to do with market timing. Market timing has to do with predicting the future moves of the stock market. This is where candlestick analysis and candlestick charting come in. Letting the market tell you what the market will do is the essence of candlestick analysis. This technique can be used both in trading the stock market and for long term investing in stocks.
Successful investing in stocks requires discipline. It also requires diversification by purchasing stocks in different market sectors in order to balance investment risk. Typical investment advice is to invest in oil stocks, tech stocks, and others when the economy is booming and to invest in bank stocks and companies that sell consumer items during a recession. Diversifying a portfolio with companies in all four market sectors reduces the risk of substantial loss in a turn of the market and provides opportunity for growth in several companies.
2. Many people invest in stocks in
order to diversify their portfolio.
Before they can begin, they must
first understand how to invest in
stocks. Investment securities
typically involve the situation
where the investor is an owner or
the investor is a loaner.
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3. For those investors interested in
owner securities, they would invest
in stocks, equity mutual funds, real
estate, REITs, collectibles,
commodities, and business
ownership.
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4. For the owner, the asset is the
common stock. When you buy a
common stock, you actually
become a part owner of the
company which gives you the right
to vote on issues at stockholder
meetings, elect directors, and have
additional responsibilities for the
company that you own stock in.
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5. Loaner assets for an investor
include items such as corporate
bonds, U.S. Treasury Securities,
municipal bonds, preferred stock,
bond-mutual funds, certificates of
deposit, and many more. The
purpose of this article however, is
to discuss how to invest in stocks
related to owner securities.
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6. When investing in stock it is very
important to hold stock that is in
different stock market sectors. This
again will ensure portfolio
diversification and your protection.
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7. Investment advisors typically
suggest that an investor holds at
least 6-8 individual stocks
representing different sectors.
Listed below are the different
sectors that an investor has to
choose from to invest in stocks.
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8. 1) Energy stocks – includes oil
and natural gas
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9. 2) Utility stocks – includes gas
utilities, electric utilities, and
telephones
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10. 3) Technology stocks – includes
electrical equipment, wireless
communications, computer
hardware, and software
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11. 4) Industrial cyclical stocks –
includes chemicals, metals,
construction, aerospace,
machinery, machine tools,
building materials, and papers
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12. 5) Financial stocks – includes
insurance, real estate, banks,
brokers, and thrifts
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13. 6) Health stocks – includes
health-care services, medical
devices, pharmaceuticals, and
drug wholesalers
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14. 7) Services stocks – includes
waste management,
transportation, media, personal
and business services, and
entertainment
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15. 8) Retail stocks – this includes
all retail excluding drug
wholesalers which is considered
health stocks
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16. 9) Consumer staples stocks –
includes tobacco, household
goods, beverages, and food
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17. 10) Consumer durable stocks –
includes house wares, multi-
industry, autos and recreation
and luxury
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18. Not only do you need to know what
sectors to choose from when you
invest in stocks, you must also know
how to actually trade stock. This
means that you must first know what
stock exchange is available. There are
two types of exchanges including the
“listed” exchange and the “non-listed”
exchange.
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19. The listed exchange includes the
New York Stock Exchange (NYSE),
and American Stock Exchange for
those investors who want to invest
in stocks. To be “listed” means that
the brokerage firms contribute
individuals known as “specialists”
who are responsible for all of the
trading in a specific stock.
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20. The specialists are also responsible
for counting the number of shares
that trade each day and then they
report the count to the exchange in
addition to the price and size of
each trade.
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21. On the contrary the “non-listed”
stocks are traded on the over-the-
counter market. The NASDAQ
stock market, the NASDAQ small-
cap, and the OTC Bulletin Board
are the three main over-the-
counter markets.
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22. Instead of “specialists” the OTC
market uses “market makers” to
match up buyers and sellers
directly, and to maintain the
inventory of the shares to the meet
the demands of the stock market.
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23. As you can see there is a lot of
information necessary for an
investor to learn to successfully
invest in stocks. To further your
education you can attend stock
market training seminars, join
investor forums online, and read a
ton of books that you find helpful.
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24. Stock trading is a very competitive
market so you must be fully-
educated and have developed a
stock trading plan that works for
you.
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