It is a well-known fact that to build wealth, you need to adopt healthy financial habits. That is, you need to save money and invest in the markets. These habits are especially important if you own a small business. However, investing doesn’t have to be complicated. All it takes is a regulated and reliable broker, a robust trading platform, and a profitable investment strategy.
Your Best Investment Strategy
There are no universal winning methods to invest in stocks. What works for one investor might not work for you. It all comes down to your personality, circumstances, and aims. These are different for everyone.
By using the right investment style for you, you should be able to avoid making typical trading mistakes. You’ll be using a well-thought-out investment strategy that reflects your availability to trade, your initial capital, your risk tolerance, and your financial goals.
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Your Strengths and Weaknesses
To pinpoint the kind of trading you should do, think about the following:
- In which stage of life are you? What are your current and future projects?
- Are you currently hitting the right balance between income and expenditures? Can you afford to lose the money you’re planning on investing?
- Why do you want to trade stock? And what are your objectives?
- What is your investment horizon?
- What kind of competitor are you? Do you like to take risks?
- Do you quickly learn from your mistakes?
- Are you a hard worker?
- How much money will you start with?
- Are you able to devote sufficient time to trading stock? In other words, how often can you analyze the markets and what’s going on in the world? Are you able to be in front of your computer, constantly analyzing charts?
- What level of investing knowledge do you currently have? Do you understand how macroeconomics influence the markets? Do you have prior investing experience?
Investor vs. Speculator
The core difference between an investor and a speculator lies in their approach to the markets. For example, investors use a conservative investment strategy. They think long-term. Speculators are risk-takers who seek quick profits.
An investor will tend to open and hold positions to take advantage of rising prices over time. In contrast, a speculator will take advantage of rapid price changes, without necessarily worrying about the quality of the underlying assets.
Depending on your investment objective and your relationship to risk, you will categorize yourself as an investor or speculator. This greatly influences your investment strategy. Your strategy will consist of:
- Financial products you use (leveraged vs. unleveraged products)
- Underlying assets to invest in (stocks, Forex, cryptocurrencies, and so on)
- Market analysis methods you follow (fundamental vs. technical analysis)
Market Analysis Methods to Consider
To determine how (and when) to engage your investment strategy, you will have to choose a market analysis method. These generally fall into two categories, either technical or fundamental analysis.
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Fundamental analysis is generally used to find companies with strong fundamentals, solid financial health, and attractive growth prospects. This type of market analysis also takes into account the way economic, social, and monetary forces influence the price of companies and other assets.
Technical analysis, on the other hand, is more often used to determine who is in charge of the markets. Buyers (bulls) or sellers (bears), will tell you the trend of an asset (bearish, bullish, or ranging). This method is also used to spot potential levels to enter or exit the market. Using this strategy is great for improving your timing.
Your Personality and Your Investment Strategy
If you are patient and can’t spend much time in front of your screen every day, then you will perform better with a “swing” or “position” investment strategy. In that case, you will be buying a stock and holding it for a while. This allows you to take advantage of price appreciation over time, without worrying about short-term price movements.
On the other hand, if you’re a gambler and you like to take risks, then an aggressive and active investment strategy (like scalping and day trading) will be a better fit for you. In that case, you will potentially make quick profits by holding a position from a few minutes to a few hours. Day traders don’t hold any trading positions for more than an entire trading session. Therefore, overnight developments in the markets will not affect them.
A Final Word on Your Investment Strategy
Many novice investors wonder which type of analysis or trading style is the most profitable. The answer to this question, like so many, is “it depends.” The most profitable strategy is going to be different for everybody because everybody is different.
In fact, the most important thing to remember is that your trading style and market analysis style should always match your personality, circumstances, and financial goals. If you keep that in mind, then you’ll nearly always find yourself ahead of the curve.