As an amateur investor, are you planning to put your best foot forward in the share market? Then you need to do your homework too well because a minor mistake in stock trading can cause huge losses and shake your confidence level. Before one decides to directly invest in the share market, the person needs to determine the category of the investor to be selected. There are three types of investors depending on their mode and purpose: Income oriented, wealth-preserving, and capital-appreciating investors.
- Income-oriented investors focus mainly on buying and holding the stocks for a longer duration of companies that pay high dividends regularly; they may also invest in high-rated bonds and other entities that generate wealth through real-estate owning and financing.
- Wealth-preserving investors target to invest only in blue-chip corporations such as Nifty 50, which means the companies that have maintained a consistent financial position through the years and are the supreme leaders in their industry. Such investors want to avoid the risk factors and refrain from chasing IPOs (Initial public offerings).
- Capital-appreciating investors are those willing to take a higher risk to make a huge profit. They deliberately look for companies with excellent performance in their early growth years.
The trading strategy varies differently for all these investors, but they sometimes mix and match the techniques to diversify their portfolios. Still, figuring out the perfect stock for new investors is a bit tricky, so let’s look at the following pointers that should be considered while selecting the stocks for trading.
- Look for liquidity:
The more the stock is liquid, the greater the chances of buyers and sellers because nobody wants to invest in illiquid stocks. One may struggle a lot in finding the trader for the larger amount of such stocks.
- Research & Analysis:
An integral part of trading or investing is researching extensively about the market conditions by following the stock market news, the running trends, the course of events altering the market output, etc. Two primary methods of analysis are fundamental and technical analysis. While technical analysis is more about identifying past patterns of price and volume, basic research focuses on the financial and economic factors influencing the business.
- Volatile stocks can be dangerous:
Stocks with high volatility move randomly and may incur huge losses for investors. Such stores have low trading volume because of less liquidity and mostly belong to the mid-cap or low-cap category.
- Seeking the help of Exchange-traded Funds (ETFs):
This is a great help for selecting the appropriate company for trading because the ETFs enlist all critical information related to the fund’s top holdings. All the relevant information about the stocks in which the industry invests can be accessed through an ETF.
- Highly rated correlation stocks:
Investing in stocks related to the major and high-performance sectors play a crucial role in the stock selection process. With the upward movement of indices, stock prices are bound to upsurge, which is what an ideal investor hopes for. The metric of 52 week high can be taken into account while selecting the stocks.
Relying upon only the suggestions mentioned above for selecting the company’s stock should not be a good idea because every strategy has its fair share of advantages and disadvantages. A stock screener is one effective tool that aids in selecting a suitable security asset. So, a novice investor should look for various other sources, such as the blogosphere and stock-trading articles, and be updated about all the financial events happening around the world.