Trading Strategies

Trading strategies vary substantially, and experts have different opinions. Therefore, individuals seeking advice are left to sort the differences and choose among the best. However, what is considered “the best?” The reality is that an excellent trading strategy for one person can be terrible for another person. The reason is that trading strategies depend on several factors, and the personality of the investor is the main contributor to success or failure. Each idea has a set of advantages and disadvantages, risks, and return on investment objectives. Investors need to select a strategy that best aligns with needs, desires, and lifestyle.

The first aspect to understand is that there is a difference between investment style and investment strategy. An investment style is like a wardrobe. If shopping for clothing, individuals will look toward purchasing a type of product based on their style. The type of clothing may be simple jeans and t-shirts. Therefore, these are the style of items that will be shopped for. An investment strategy would be comparable to the specific type of jean. For example, people shopping for jeans may like a tight or relaxed fit. A comprehensive strategy, like a wardrobe, must align so that each piece fits seamlessly and makes sense, thus following a set of rules, procedures, and norms that work together to increase the value of a portfolio.

When creating a strategy, prospective investors need to consider the return on investment and the potential risk involved. Furthermore, investors need rules and guidelines that provide information so that they avoid acting based on feelings and emotions. A roadmap does not only provide clarity; it also saves time. Furthermore, the strategy must include achievable goals and a way of measuring results. If this information is not known, search for trading strategies and research and read up on information regarding each one.

Long-term investments revolve around the idea of compounding interest and are concerned with how an investment will perform in years, and not months or days. The historic return on investment for stocks is roughly 7%. When this return is accumulated and, after further savings are invested, medium and long-term investment goals are sure to be achieved. However, other strategies exist that generate returns from dividends obtained from stocks. Furthermore, investors can expand on the strategy of generating a profit from dividends to include dividend growth investing where companies meet certain criteria to ensure that these dividends continue to grow with time and that the company can continuously pay the dividends.

Some experts believe that fundamental analysis is the best way to generate a return on investment from a stock. Essentially, this strategy involves purchasing a stock as if purchasing a business. Therefore, aspects such as business value, growth potential, income, and quality, among others are aspects that investors should consider prior to purchasing the stock. The idea is to understand how much the business is worth and this can be calculated by looking at the company’s financial statements. Investors that purchase companies based on their fundamentals are purchasing a piece of the business based on value where the stock should be worth more than the price per share. Some of the numbers that value investors review is Price to Earnings (P/E) ratio, dividend yield information, book value per share, and sales data.

Regardless of the selected strategy, investors need to understand who they are, what they want, and what their risk tolerance is. Investors should be honest about their goals and objectives. Once these individuals have obtained such clarity, they can seek out and tailor a strategy to fit their personality and goals. Whether looking for the best gold stocks or seeking information on the next new disruptive technology to invest in, clarity in goals and tolerance will determine if the investment is right.