In this article we will provide you with some pointers regarding stock market advice.
In particular, we will try to understand what are the shares on which we should invest, because hot stocks should be avoided and then we will provide some explanations regarding the alternatives to the traditional purchase of shares such as investment funds or trading on derivatives such as i CFD.
We will also talk about the strategies to be used to trade stocks on the stock market and all the important aspects necessary to conduct good trading such as portfolio diversification, money management and trading psychology.
At this point we just have to wish you happy reading.
Stock Market Tips: Which Shares Should I Buy?
There are many people who would like advice on the stock market to try to make money on the stock market, here are some rules to follow when looking for the most promising stocks.
First of all, when investing in the stock market and in particular buying an equity package, it is necessary to understand that the action is an instrument whose price can vary widely between one negotiation and another and it can theoretically assume any value.
Unlike other safer financial instruments, for example bonds, where the price of the bond at least on the maturity date is certain (conventionally equal to 100), the price of a share is never known in the future.
The foregoing represents the so-called market risk, that is, the risk associated with the uncertainty of the future price of a share with respect to the purchase price.
Good advice on the stock market should also always include the purchase of shares of well-capitalized companies with a low level of indebtedness, in order to be able to estimate or hope for future growth (even in the hypothesis that the stock should not really go well in the early stages immediately after purchase).
Associated with the concept of capitalization marketthere is also an additional aspect concerning the number of shares issued and traded on the secondary market. In fact, it would be advisable to trade only sufficiently liquid securities, that is, where there is always a counterparty willing to buy or sell the shares in our possession when we decide to close the position.
In fact, an illiquid market would expose the investor to the risk of no longer being able to sell the security (regardless of whether he is gaining or not) due to the lack of a counterparty willing to negotiate.
For this reason, it would be desirable for the investor, always in the context of good stock market advice, to operate within regulated markets.
In this case, in fact, there would be certainty, as provided by the stock exchange supervisory authorities (in Italy the Consob) to always find a professional operator or market maker willing to act as counterparty.
Hot: a common mistake
stocksMany online trading and investment platforms display the hot stocks of the moment often misleading incentives for traders to buy stocks that are doing well today.
The problem is that what is going well today on the stock market is by no means certain that it will continue to go well tomorrow!
It would therefore be preferable to buy securities not on the basis of an emotional wave or based on the fact that the title is going well today, as this condition does not in our opinion represent a sufficient reason to be able to decree the goodness of the investment, rather through technical or fundamental considerations or by applying appropriate trading strategies.
If you want to know more about trading strategies, visit our dedicated page trading courses.
Alternatives to direct purchase of shares: CFDs
You should know that direct purchase of shares in a bank or through your trading platform or online bank is not the only way to make equity investments.
There are alternatives to the direct purchase of shares, such as CFDs, which are nothing more than replication derivative instruments, that is, which exactly replicate the underlying financial instrument.
These instruments make it possible to obtain good return performances against a high level of risk, together with ease of negotiation (often through the market maker who acts as a direct intermediary).
Among the various stock market tips that we would like to give you, we cannot fail to mention equity investment funds, which are certainly an excellent option, especially for those who do not have the skills or time to build a well diversified portfolio.
It must be remembered that the big advantage of buying an investment fund lies in the intrinsic diversification of the securities.
The purchase of shares in an equity fund allows us to invest not in the shares of a single listed company, but in a basket of shares of different companies.
This aspect, precisely the diversification, is particularly important as it allows us to spread the risk due to the potential bankruptcy of a single company belonging to the fund and therefore this eventuality, from which we must always protect ourselves, would not unduly affect the performance of the bottom itself.
Don’t just rely on stock market advice – learn it yourself!
There are no better tips on the stock market than you can get directly from yourself!
If there is one thing that distinguishes successful investors or speculators from those who lose money on the stock exchange, it is precisely the personal competence acquired in the financial markets.
The advantages of learning the logic and mechanisms that lie behind the functioning of the actions and the markets lies mainly in the fact that it is possible to free oneself from the decisions of third persons, for example consultants, whose opinions often and willingly are not in line with the characteristics desirable by the investor and with its own objectives.
Today, in the information age, it should be fairly simple to be able to get enough information about how you learn to invest in markets and how to manage an equity portfolio.
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Derivatives and private online trading
Another sector in strong development today is certainly represented by the derivatives market and by the private online trading, increasingly practiced by different operators thanks to the numerous opportunities offered by brokers, banks and market makers.
Derivatives, for example CFDs (contracts for difference) allow for an overexposure on the market through the use of margin or leverage.
However, it must be said that using leverage tools can certainly involve high levels of risk if you are unable to manage your trading well (both in terms of strategy, money management as well as the delicate psychological aspect).
In the stock market advice, investment strategies are among those that certainly assume a decisive role in that they allow you to set up a trading model compatible with your objectives and your time horizon.
For example, a short term trading will be carried out using a series of completely different strategies compared to a long term investment.
Learn more about the topic: trading strategies.
Fundamental analysis vs technical analysis
Among the various tips on the stock market, we also feel compelled to remind the investor how important it is to learntechnical analysis and fundamental analysis.
In fact, both themes represent the main and basic tool to be able to understand what is the actual state of health of a company whose shares you want to buy.
In simple terms, the fundamental analysis provides us with a general overview of the company’s balance sheet and income statement while the technical analysis can allow us to make a forecast, at least in the short term, as regards the future trend of the listing, the presence of a trend or a lateral phase and give us valuable information on the possibility of investing in that company or if it would be better to identify better opportunities.
Among all the best tips on the stock market, what certainly has a fundamental impact in controlling the risk of your investor activity is certainly the diversification portfolio.
This important aspect of building your own asset allows you to limit the risks associated with strong portfolio volatility.
Of all the possible stock market tips we could ever give you, this is certainly the most important, that is, money management.
In simple terms the investor should never expose himself to each company with an excessive share of his total capital available for investment.
In this way there is certainly the guarantee of operating with a large safety net, protecting itself from potential disasters if a security should suffer large losses.
In fact, these losses would certainly be controlled within the diversified portfolio thanks to the fact that it was decided to allocate only a small part of its capital to that specific company.
An aspect no less important when you want to seriously evaluate the purchase of an equity fund or a package of shares is that relating to the psychology of trading and investment.
Well, you should know that most operators, perpetually at a loss, too often make choices based on an emotional wave attributable to attitudes of greed and fear.
In fact, it is precisely greed that pushes the investor to stay in a position for too long, hoping that the share prices will rise even more, even if it happens quite often to note that part of the gains made are then lost due to natural corrections to the downside that the stocks record: here is therefore that in a potentially profitable scenario one is forced to give up a part of the gains or in the worst case see your portfolio return at a loss.
Quite the contrary, the fear of losing even more certainly represents the main responsible for liquidating one’s loss positions precisely because the investor exhausted from the losses suffered can no longer tolerate any more.
Well, in most cases, the latter scenario occurs very often just before the prices start to rise again. This is certainly not the correct way to do things!