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Stock investment is one of the biggest sectors of investment in today’s context. From a layman to the rich we see everyone investing on shares of different companies. But, does this really mean that the stock market is an easy money making place? NO!
You may be surprise to know that only 10% investors makes a real profit in stock market while 70% remains indifferent and rest bear huge loss. Thus, many quits and others wait for fortune bell to ring. But, this not what a professional does.
Stock Analysis: 5 Major Factors to Be Analyzed For Better Investment:
Analyze Your Psychology:
A stock chart is nothing more than a picture of human emotions. Painted on the canvas are the emotions of greed, fear, hope, and euphoria. As a disciplined trader, you capitalize on the psychological demons that plague other traders. Thus, your psychology plays a vital role for making gain and loss in the market. Taming your mind is the first and the most important thing that you should know before investing in the market. And the taming your mind comes from better plans.
If you are going to invest we want you to do it as a professional. Make your own plans and stick with it. Stock makes minor corrections many times but immature investor’s fears the crash and they sell with huge loss. This is only because they had no plans.
Analyzing Perfect Broker:
Analyzing and choosing the best broker as per your need is not an easy task. If you are new to share market than you may not know that online brokers are classified in two major groups as their function varies from each other.
Full Service Broker:
Full service broker are those who offers you with a better suggestion over your investments and plans your better retirement. Thus, if you are planning for a long term investment than your need is a full service broker.
Discount Broker:
Discount brokers like Ameritrade will offer significantly reduced fees and commissions but they do not offer any kind of advice regarding which stocks to buy or how you are going to retire in 10 years. You are on your own! For swing trading and day trading your best option is to use a discount broker.
Payments and Commissions:
In addition to the commissions charged for your trades, you may be charged for ECN (Electronic Communications Networks) fees. Other fees may include market data fees. These fees may be charged for access to the data that feeds your software application. You will need to check with your broker to find out their specific fee schedule.
Analyzing Money Management:
Money management is the crucial part of stock market. Investing on shares and managing your profit and loss with the market price is something that every investor should be well aware of. One of the Pro ways of managing your money is the 2 for 1 management. If you are new to trading stocks then this will help you to stay alive while on the learning curve. This money management strategy will help maximize your profits while minimizing your losses.
Suppose that you buy 500 shares of a stock at $35.00. You determine that your stop is going to be at $34. You are risking $.1/share. Now if the stock goes in your favor you will take of your profits at $36 and leave your stop on the remaining shares at $34. What does this mean? Well, you took a partial profit on half your shares once the stock moved equal to your positions original stop loss. Now, if you get stopped out on the remaining shares you will have lost nothing.
Thus, by taking half your shares off the table you have given yourself a “free trade” (minus commissions). Assuming that the stock doesn’t gap down overnight, you can let the stock run.
Analyzing Balance Sheets:
Analyzing the balance sheet of your invested company is very important and is the most. Without the proper knowledge of your company’s financial status we suggest you to avoid investment. The data’s given in the financial report shows the financial stability of your company. Data’s like: Issued capital, Reserve, Profit, Invested sectors, Debit and Credit column, Liabilities and Assets of the company etc are some important factors that affect the market price of the company.
Furthermore, the goodwill of the company and the reputation of the company’s owners and CEO’s should also be remarked before investing in the stock. For this you can take you brokers advice and even you friends who is in the market for long time can help you out.
Analyzing Political Conditions:
Political condition of the nation has direct relation with the stock market because stock market not only an earning place but it also determines the Nations developments and economic stability. Any riot, terrorism activities or strikes with major problems can give a server impact in market.
Thus, before investing we suggest you to make better analysis about the political condition and about the government or ruling party because the plans and polices brought by the ruling party may discourage or encourage the stock.
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Source by Kiran Bista