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Looking to make money from the stock market? Here are four proven stock market strategies that can flood your bank account with profits.
Investing in the stock market might just be the best decision you can take, the interest earned on it is higher than a savings account or even fixed or recurring deposit account.
You know what they say, a strategy is better than no strategy; so before you invest, prepare your go-to-market strategy and make money as you implement your strategy.
A Good Stock Market Trading Strategy
A trading strategy is a properly executed strategy that ensures “you know what you’re doing” when you enter the market and of course to make a decent profit.
A good trading strategy should include:
- How to approach stocks
- Why buy the stock
- Why and when to exit
- Low risks and losses
By now I’m pretty sure you know that stock market trading isn’t a thing that a 5-year-old would follow.
It’s tough, you need to understand what you’re doing cause, after all, you’re putting your money in it and I’m confident your intention isn’t to make a loss!
Some of the strategies below are simple, so simple that a 5-year-old may understand it while some are hard, complex, fixing a car in the middle of the desert may be easier; these will take your time and brainpower.
Sage Tip: The smartest investors out there use the simplest methods and make the most money. Don’t go too easy, try some new things but don’t simply overcomplicate it!
4 Stock Market Strategies For Beginners (That Work)
1. The Friday-Highday Strategy
The Friday-Highday Strategy is simple. You buy the shares you want to invest in on Friday and never sell it on a Friday. Let’s break it down.
- The stock market is open from Monday to Friday, Saturday and Sunday being a holiday.
- Most investors don’t like taking risks.
The two days – Saturday and Sunday are blind days so you can’t predict what might happen to a company whose shares you have purchased.
If Company X says they’re insolvent on Saturday, you won’t be able to sell your shares on Saturday as the market is shut down.
So to avoid this unpredictability, many investors sell their shares on Friday, it doesn’t matter if they make a few bucks or a lot. They sell and de-risk themselves.
When many investors sell shares of a company, suddenly the supply of that share increases while the demand isn’t that much. This results in the share price falling.
Note: This strategy doesn’t apply for every stock and every sector. You need to look at the trend of that particular stock to see if this pattern applies. Timing the market is bad as it doesn’t always work out well.
Once the price drops, you can buy the shares at a lower price. Now your chances of making a profit increase, all because of the fear mentality of investors.
To identify if you should buy a stock on Friday, you need to check it’s the price on Thursday, and if you see at least a 5% drop in prices on Friday, you can purchase the stock.
The fall in stock prices is not because of the company’s losses but solely because of investors mentality.
2. The Five Buy Strategy
The Five Buy Strategy isn’t timing the market like the above strategy. Timing the market isn’t easy.
You need to be in front of your laptop all day to see when it falls and when it rises. It’s tough and especially takes up a lot of time.
That’s why the five buy strategy is different. Here you buy one or more stocks from five different sectors; these sectors can be the five major sectors by which your country won’t function.
For instance, IT Sector, Banking Sector, Pharma Sector, Travel & Entertainment Sector, FMCG Sector and so on.
Your sole focus should be to buy shares of all these sectors. Each sector has some unique value to it which can appreciate over time.
The easiest way to achieve this is by creating 5 wish lists each containing 5-10 stocks of that particular sector, then when you buy stocks, make sure you buy from each of these to minimize risk.
3. The DOA Strategy
The DOA aka Dollar Cost Averaging is a very famous strategy used by investors all the time. In India, dollar cost averaging is used through an investment instrument called Systematic Investment Planning (SIP).
This strategy couldn’t get any simpler, you invest a fixed amount of money each month towards investments and reap the benefits of dollar-cost averaging.
But why to invest each month, what’s the logic behind this strategy.
Understand this fact, investments are subject to market risk, one month the stock prices may rise, the next month they might fall.
There’s no stability and consistency in it. You may invest when the market is at its low or you may invest when the market is high, you never know.
So to avoid this mess, you can invest some amount each month, that way few months which were high and few months that were low get balanced thus you surely don’t face losses and you end up making some profit.
4. The B.L.S.H/B.H.S.L Strategy
The most used strategy all over the world – The Buy Low Sell High Strategy. This might look easy as it’s obvious plus everyone does it but it’s difficult.
For this, you need to constantly keep an eye on stocks you want to purchase at a low price. How to do that? The long method is you sitting in front of your laptop with your stock platform and seeing the fluctuations in price.
As soon as it drops, you hit buy and purchase the shares. The easier alternative to this is to set up a buy order and set a target price for that buy order.
Let’s say the price of Stock X is Rs 450, you want to purchase it when it’s Rs 400, so you set your target price at Rs 405, this target price is an indicator to the stock market that if your price is met at Rs 400, the stock will be purchased.
This is a great way to buy low as you don’t need to wait for the price to drop and then buy it. Just set a price and when it hits, your purchase will be made.
Similarly, the B.H.S.L stands for Buy High Sell Low, and this means you sell first and then buy. Didn’t make sense? Understand the concept – Usually, we buy a share first and then sell it at a higher price to make a profit right?
But what if the price of the stock is already high right now and you think it will fall in a day?
Under such circumstances, you sell at a higher price today and buy at a lower price tomorrow (this transaction is valid only for 24 hours).
Other than this, you also need to keep a few things in mind while investing
Key Points To Note When Trading
Diversification of Stock
You don’t want to put all your eggs in one basket, don’t do that. If that stock you love so much fails, all your money is dead in the water.
Warren Buffett believes in two things – Long term investing and Diversification.
Don’t want to listen to me, that’s okay; but at least listen to Warren Buffett – He’s the best there is!
Read Articles and Watch the News
No matter how good you think you are in buying and selling stocks, no one is that great.
Without the latest information and updated articles, even the best of the best can fail. Rakesh Jhunjhunwala, a wealthy Indian investor has also lost a lot of money in the stock market.
The smartest way to minimize losses is by reading articles, understanding all the concepts regarding the stock market, shares, paid-up capital, dividends, preference shares, IPO, FPO and the latest news on the company you’re planning to invest in.
Join Facebook Groups and Interact
There’s a shortcut to learning all of this fast, Facebook groups. There are many such groups out there.
My personal favourite is Banking and Investment Ideas by CashOverflow. These groups discuss stock markets, their ups and downs, personal opinions and do logical reasoning which is good for you as a beginner.
Join these groups and interact to gain maximum knowledge.
Use a Simulator
If you’re a beginner, I suggest you don’t just jump in and pour all your money in the stock market, you may face heavy losses. Instead, use a simulator and practice trading.
A Simulator is a platform where they give you fake cash to invest in stocks you want.
You can try and test all your strategies here to see if you make losses or profits.
The great benefit with a Simulator is that all stock prices are real-time and if you make losses, you won’t lose any money as you’re using fake money.
Make a Wish list
Making a wishlist helps you analyse your stock right when you open your trading platform. It’s easy to see navigate and is especially beneficial when you have to compare between two or more stocks.
Don’t plan on buying 100 shares of 100 different companies. Instead, make a wishlist of the 20-30 companies that you like, keep updating yourself about those companies and buy their stocks.
The Number #1 Book To Understanding the Market
Who’s The Best Investor in the World? Yes, you’re right, it’s Warren Buffett. Now is your time to learn trading from the Best!
The Essay Of Warren Buffett is a book written by Warren Buffett.
The knowledge provided in this book is unparalleled to any other book. This book tells you the Berkshire Hathaway CEO’s approach to smart investing and how he got from a little money to be a billionaire.
This book sums it all up perfectly in one book. All his learning in just one book? Yes, that’s right!
The Essay of Warren Buffett is not just any ordinary Investing book, so don’t take it lightly and buy the book from Amazon Now!
Why Knowledge is Power in the Stock Market
Predicting the market is surely not a good idea, but the more knowledge you have, the better is your position in the stock market.
If an investment bank is planning on investing in a company and because you’re up to date with the latest information through news, YouTube, articles and Facebook groups, you buy some shares of the company today hoping it will make a significant profit once the investment from the investment bank is made.
Reliance Industries Ltd has got so many companies to invest in it thus increasing its share value by over 100% in just 7-8 months.
If you invested in Reliance shares in March/April, today your share price would be more than double your invested amount thus giving you over 100% profits!
That doesn’t mean all companies did great, most companies faced heavy losses during this period, their share price has fallen drastically.
I’m not saying Reliance is a great company, all I’m saying is that if you read the news and came to know about companies investing in Reliance, you would’ve made awesome profits today.
Stock Market Strategies – The One Suited For You?
Would you like to walk on the road all alone with a blindfold? That’s because to be safe and alive you need to know where you’re going, otherwise, a truck might hit you and you may die.
Similarly, without a good strategy, you’re just running around trying to find a stock that makes you happy with no understanding of making profits or losses with it.
Most people who invest in the stock market make heavy losses but they don’t admit it, if they had a good strategy in place, I’m certain that their losses will start reducing.
Sage Tip: Know the Intrinsic Value of the Stock, it will help you make decisions easily. You can buy when the stock price is slightly lower than intrinsic value and sell when it’s higher.
A good strategy without any IQ about companies and their stocks is just like going to the exams without studying anything, you’re sure to fail miserably!
So don’t be uneducated about the financials regarding the stock market. Read a few articles every day and in time, you’ll be a stock market trading professional!
What strategy do you use to make profits in the stock market? Don’t worry, I won’t steal your profits! Let’s discuss in the comments below.
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