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Stock Market for beginners

cardguy | Jul 28, 2009 |

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We all keep hearing stories about the millionaire which the stock market has made out of ordinary guys. These stories inspire millions of small investors to invest in the stock market in search of that stock which can make them a millionaire.

The reality however is that it is not that easy to make money on the market. It requires immense discipline and patience to make money on the stock market. Stock market is a tough beast to master and you would need all your skills as stock market beginner to tame the beast.

Here are my few tips to help you understand the stock market and also make good profits on the stock market.

Define your risk profile

Before you start investing in the market you should know about how much risk you can assume. If you have enough cash to burn then that will mean that you can go for a strategy of investing which has a very high amount of risk. High risk high gain should be your motto.

If you have a low risk profile then you will have to invest in the stocks that are relatively safe. These safe stocks are the defensive stocks which can deliver average gains over a long period of time. Also then you will need to diversify your cash investing such that you have some money invested in safe money market mutual funds.

Discover your investment strategy by defining your horizon for investment

The investment horizon will determine what kind of stock investment strategy you want to go with. If you are an intra day trader then you will never think of stocks fundamental value rather you will go with the current flavor of the day.

If you have an investment horizon of the say five years or more then the kind of stock you will pick are those who have huge upside potential. You will have to do a fair amount of research to pick a good stock which will deliver in the long run.

Learn about stock markets

Invest some time in reading the financial dailies like Wall Street Journal and the Smart Money. Subscribe to stock market magazine like Barrons. Reading this will give you insight into the trends of the stock market as well as the overall economy.

Step by step guide - The first few steps that you need to take to get initiated into the stock market are:

Open an account with a discount stock broker online

Deposit some money in the account

Put the order for a first trade. Do not go for a big trade initially. Invest in good stock buying only small quantities of stock. This will get you started into the stock markets