Successful Stock Trading is a Process

Article Written By: danielletaylor1

Maybe you are not going about things in the right way. Maybe you just had a little bad luck. Is there something that other successful stock traders are doing that you are not? Is it just a matter of luck? Smart and successful stock trading requires one to do good research, diversify their portfolio and be comfortable with taking a certain degree of risk.

Fundamental Analysis

The term refers to studying a company's balance sheet, income statement, price/earning ratio and a host of other statistics and fundamentals that determine the health of a stock. Good fundamental analysis involves immersing yourself in information that will give you the clearest picture of a company. You should get an idea if the company is young, vibrant, on the upswing or just chugging along with very few prospects for growth. Knowing how the company you are interested in compares to others in the same industry is important. You should be able to answer the question of whether the stock is underpriced, fairly priced or overpriced based on its fundamentals. It is not just numbers. It is also the story behind the company. What kind of management does the company have? Are there any specific plans that could affect the price of the stock? These and other important questions about the company's future outlook need to be asked and answered.

Technical Analysis

If you've ever tuned in to one of the national shows that focus on the world of business and the stock market, you've undoubtedly seen experts providing technical analysis and offering their opinion on the market and individual stocks. They put fundamental analysis on the back burner and instead concentrate on predicting future performance based on data from the past. They bring out all sorts of charts and use strange terms to analyze price movement. Based on what happened in the past when the same patterns appeared, they make specific recommendations about the expected future performance of a stock. Some types of technical analysis is more detailed than other types. A technician will study moving averages, head and shoulder patterns and much more. Many technical analysts perform well when it comes to stock trading.

Diversification

Like the saying goes, "don't put all your eggs in one basket," you also shouldn t put all your money in one stock. No one can predict the future and even if you have the greatest stock since trading stocks was invented; there is always a chance that stock will underperform. Who knew BP, a high flying, multibillion dollar company would face a crisis that would cost billions to resolve? Before the well blew and oil flooded the waters, BP was selling for more than $50.00 per share. The unpredictable events sent this cash laden company's stock price plummeting. For a while, it sunk below $30.00 a share. Having stock investments spread out over a number of areas makes good sense. Diversification does not mean buying 5 or 10 stocks for your portfolio. It means buying 5 or 10 diametrically opposed stocks or stocks that react differently to different market conditions. Pick the best stocks in each specific industry. Good stocks will go up over time. Being diversified will allow you to wait until each stock in your portfolio has risen sufficiently and will smooth out the day to day bumps in the market.

Risk Tolerance

Any stock trading strategy has some degree of risk. The basic rule is the greater the risk, the greater the possible return. Conservative investors who cannot tolerate wide swings in stock price can invest in stocks that have low volatility. These stocks move slowly, both up and down and often pay a dividend. Some of the more common categories where you would find highly speculative stocks are in technology and biotech.

About the Author

Danielle Taylor - stock trading. She tends to end up planning her finances at www.firstrade.com more often than not.

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