Stock trading was considered a risky affair only a few years back. Some people even shunned it as an avoidable gamble. More than any other business, stock trading is now a surer route to financial prosperity. Even though the stock market experts are never tired of saying that stock markets remain mostly volatile and unpredictable, yet there are people who always earn to deal with the fluctuations.
When you search the market for hot stocks, you come across numerous hot stocks almost every day. Most of these stocks may appear promising, but the fact remains that some of them may be extremely risky. It is, therefore, important to learn how to differentiate between a good and a risky stock.
The most important factor that makes you a winner in this game is the vigilance over the stock market scenario, more especially about the stocks, which you are trading. It is imperative that you keep yourself updated with the latest information about the stock market.
Update yourself with daily news flashes
Your stock broker will provide the latest news flashes on his website. These news relate to the current financial environment in the country, the government policies and political decisions that are likely to influence the stock market, board meetings of the companies whose stocks you are trading, the periodic financial reports, financial decisions, balance sheets, orders and supply position, sales, new acquisitions, expansion programs and so on. The financial news flashes on any day can provide important inputs to the stock trader about which stocks to sell and which to buy. For example, you have the following news items:
"Two biotech names are outperformers. Osiris Therapeutics (OSIR +10%) won a $224.7 million contract from the DOD. Human Genonme Sciences (HGSI +4%) was called Citigroup's Top Pick for 2008. Lagging groups include the economically-sensitive Consumer Cyclicals (XLY -2.8%), Materials (XLB -2.4%), Technology (XLK -3.2%) and Energy (-2.2%)".
"The economically sensitive technology and consumer discretionary sectors are poised to lead the market's decline, continuing their recent pattern. Chipmakers (SOX -1.4%) dropped to a new 52-week low, while homebuilders (XHB) plunged 4%.
U.S. oil inventories fell more than expected but crude is little changed. Seed maker Monsanto (MON) blew away sales and EPS expectations. The results helped rekindle the ag trade. Fertilizer producers (AGU, CF, MOS, POT, TNH, TRA) and tractor makers (AG, CNH, DE) are notably higher."
The above news items provide sufficient data about which stocks should be bought or avoided. You may think of buying biotech out-performers, Osiris Therapeutics and Human Genome Sciences cited by the Citygroup as the top picks for 2008. You also know you have to avoid the laggards such as Consumer Cyclicals, Technology, Energy stocks.
Suppose you find that a company has strong fundamentals, but is not performing due to certain transient market conditions, you may buy the stock of that company when you find it to a new 52-weak low and save it till the stock takes an upward turn.
As a shrewd investor, you should not be satisfied with these reports. You should search the financials of the company whose stock appears promising to you, or, those that should be sold out. As the time passes, you may evolve an intuition, a gut feeling about the consequences of the given financial scenario and act accordingly.
Perseverance is the Key
Stock markets often remain unpredictable despite the most scholarly analyses of the experts. If they were predictable, every body would become rich. Loss is an inherent ingredient of every trade. Only those who persevere are the ultimate winners. Losses only wake you up about your mistakes. Learning in any field, or, for that matter in stocks, cannot happen overnight. It takes time, diligence and effort to learn. Experience is a great teacher.
Don't buy in a hurry and sell in panic
Some people are carried away by big names and get emotionally involved with them. And when the price of their stock falls, they panic and sell it off only to find that the price rises the next day. There are others who just fall in love with a stock and continue to hold it hoping it would touch the skies, even though it may have risen substantially from their buy price. These are not sound economic decisions.
By Amit Malhotra
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