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Basic Stock Trading Strategies

By Edited Nov 13, 2013 0 0

Basic Stock Trading Strategies

The stock market can be a confusing place for a beginner, it is therefore useful to have a basic strategy before risking any of your money. It is also essential in my view to understand at laest the basic of stock charting. Professional traders use stock charts to time their trades so if you don' t understand what the charts are saying, at least at a very basic level, then you are at a disadvantage.

Stock Market for Beginners

The most basic concept when considering stock charts is the notion of support and resistance. A stock price will fall down to a certain level and this is known as support, it may then turn around and rise up to a certain level, this is known as resistance. Some people trade shares using nothing more complicated than this basic strategy of buying when a stock hits it support level and selling when it hits its resistance level. Stocks will often bounce around in this way a number of times, trading in what is known as channel. You can study the stock charts on finance sites and discover stocks that are trading within such channels.

The aim of course is to buy at the bottom of the channel and sell at the top. This strategy is not designed to make you rich over night, it is designed to bring in profits of around 9 - 10% over and over again. Once you have achieved your target profit then you sell the stock and look for another one.

It is a very basic strategy, but it can prove very profitable over time.

It is also important if you are trying to make money stock trading, that you ensure that any losses you make are limited. If you buy a stock and it starts heading down instead of up then you need to sell it before it turns into a disaster. Don't hang on waiting for it to recover, that is far too risky. To sell for a small loss you need to set a 'stop loss' - a price at which you will automatically sell. Your 'stop loss' should be set at around 3-4% below your buy price. By doing this you ensure that you have a chance of making a 10% profit whilst only risking a 4% loss. Whether you are a beginner or an expert on the stock market, you need to carefully assess the risk/reward ratios. Risky trades are to be avoided, unless you are a gambler. The purpose of a stop loss is to ensure that you do not lose all your money in one trade.

So in this basic stock trading strategy you need to find a stock that is in an upward trend and which seems to be offering a minimum 7-8% profit. You then identify the support level and buy when the stock falls back to this level. There is no need to buy all the stock you want to buy in one go, buy half and see which way the stock is heading, if it continues to head up then buy the other half. If it starts to fall then sell your holding when you have lost around 4% of your stake - when trading stocks you can lose a battle now and again as long as you don't lose the war.


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