SHARETIPSINFO >> Articles Directory >>Trading Education: The Best of Both Worlds
There are two different perspectives in which you can see the stock market – one is a way of making long term investment and the other is doing daily or short term stock trading for getting profit. Based on these two approaches we can divide the investors as well – namely the investors and traders. Investors are those who invest in the stocks for long term and the traders are those who regularly trade in stocks. These two groups approach the stock market in two completely different ways. While the investors look for the stocks of the larger companies for investing for long terms, the stock traders look for stocks that are showing regular changes in the price and they tend to gain from the regular price movement of the stocks. This is the reason that these two groups have different eyes for looking at the stock market. Hence there are lots of differences in the methods that they adopt for selecting the stocks. Here we will focus on two different ways of judging the stocks and then you can judge the best solution that suits you the best.
For the investors who make long term investments in the stock market, the objective is double folded. Some of them want to increase the bottom line of their portfolio by investing in the blue chip companies that will give them multiple returns in the future. There are of course some investors who also look for an earning from the dividends that are paid by the profit making companies to its existing share holders. Whatever is the objective of the investor, when it is a long term investment – investors always choose to invest in the companies that have large market capitalization, history of making good profit year after year and in most cases leaders in their respective industries. Of course those investors, who are also eyeing the dividend, tend to invest in the dividend stocks – stocks that have given dividends in the past years.
The basic of choosing the stocks for long term investment is of course the fundamental analysis of the companies. Through the analysis the financial standing of the company is studied to predict the future of the company in the stock market and in the business. There are certain parameters like earnings, debt and liquidity of the company that is judged to see how well is the company for long term investment. Generally it is wise to invest in the companies that have a history of posting good earning over the last few years, low debt, huge assets and of course large market capitalization.
On the other the traders who regularly trade at the stock market and make short term investment on the stocks have completely different objective. Their primary goal is to get regular income from the day to day price difference of the stocks. Therefore it is quite natural that will target the stocks that are showing maximum movements in the price level in the last few days or months. As the daily traders it does not matter whether the price of the stock is rising or falling – as they can always shirt sell the stocks when the price of a certain stock is falling steadily. The factor that they look for is the daily price movement of the stock. Though there are so many ways of daily trading and short term trading like margin trading, derivative trading, short selling – the main objective of all these methods is to make profit within a specific period of time.
Though there are so many factors that come into play while the traders pick up the stocks for trading – the basic method that is followed by the traders to select the stocks and to determine the optimum price level of the stocks is the technical analysis of the stocks. In technical analysis different parameters like closing price of the stock, trading volume, average trading volume, P/E ratio of the stock, 52 weeks high and low price of the stock – all these are considered. Through technical analysis traders try to speculate the future price movement of the stock by comparing the recent data with the past graph of price movement of that particular stock.
But it really wise and a great idea to take the best of both this world and diversify your portfolio where you have certain stocks for long term investment as well as for short term trading.
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