The Coronavirus pandemic introduced a new stream of awareness to various sources of income, one of which was stock trading.
Stock trading is the act of buying and selling on the stock market.
Following the advent of easy-to-use online trading platforms like sofi investment platform, more people have access to stocks than ever before – and that access is only poised to increase – so with all that said, here’s a comprehensive look at how to succeed with self-employed day trading.
Invest In Businesses You Understand
The stock market is akin to a highway with over 24,000 stocks zooming through it each and every day.
With so many stocks in the market, it’s ridiculously hard to make good investment decisions – which is why the best way to consistently make a profit in the market is to invest in businesses you either inherently understand – or take the time out to research businesses before you put your money in them.
When you understand a business, you essentially take the guess-work out of stock trading and automatically make better investing decisions because you’re always in the know about potential black swan events that could lead to a massive sell-off among the stock’s holders or that could lead to a huge rally in the stock’s share price.
The reason many investors fail to stay profitable is primarily because they invest in stocks that they have very little to no understanding of – after all, without having a deep understanding of everything a stock encompasses, it’ll be hard to hold it through dips and sell it through market tops.
Invest In A Few Niches You Understand
One of the biggest pitfalls investors face is the fact that they focus on far too many sectors of the stock market as opposed to only a few niches they understand and are actively involved in.
You see, big investment firms and hedge-funds are usually able to consistently produce great annualized stock market returns because they boast small teams of quantitative analysts that specialize in various sectors of the market.
For instance, a team of analysts could focus exclusively on investments relating to the Electric Vehicle market, while another team of analysts could focus on investments within the 3D printing space.
Being able to specialize in just one or a few sectors in the market grants you an uncanny ability to find undervalued stocks and under-tapped opportunities in that area of the market.
For instance, say you’re a gamer who’s familiar with the gaming market. Your knowledge of the gaming industry will help you determine what stocks to invest in and which ones to avoid.
Or if you’re a serial gambler who’s familiar with the sports betting market – your knowledge of the industry will allow you to pick stocks with good prospects for the future because you have a deep understanding of the industry.
You’ll also know things like major upcoming release dates that could trigger a pump in the price of a gaming stock – allowing you to position yourself for said pump.
In other words, when you invest in a niche you understand, you put yourself in a position to succeed at investing.
Dollar-cost Average Through Dips And Crashes
Dollar-cost averaging (DCA) is an investment strategy whereby you split the total amount of money you intend to invest into the market into periodic purchases of a specific asset in a bid to lessen the impact of volatility on the asset.
It’s similar to paying off a mortgage every month, only this time, you’re putting money into the market instead of a house, and you’re putting that money into it through dips and price spikes in the hopes that over time, your stake in the stock will be worth a lot of money.
Here’s a look at how dollar-cost averaging works.
Let’s say you intend to invest a total of $800 in a stock like Tesla ($TSLA) – you would split the investment and buy the stock periodically as opposed to up front.
The idea behind dollar-cost averaging is that it protects traders against the various market fluctuations and protects them from investment risks. It also prevents instances of bad timing, if traders get into a trade at the wrong time it affects their position even if the proper analysis has been done.
The dollar-cost average eliminates any emotional component that comes about as a result of price swings. Without DCA traders might make impulsive decisions to sell or buy based on movements in price. Instead, DCA removes this component as the purchases are made periodically at a set time interval.
It takes a lot of discipline and focus to utilize strategies like dollar-cost averaging effectively, so as much as the technique is simple and easy-to-understand on the surface, you need to cultivate enough discipline, patience and focus to execute it effectively.