A Simple Guide to Buying Stocks

Every trade starts with a stock. But with a multitude of stocks in the market, which one do you choose and how do you decide? more importantly, what's the right signal to buy a stock?

Assumptions

Before your carve out your golden rules, you have to ask yourself a couple of questions first. Your criteria will depend on your needs and expectations.

• Are you a trader or investor?
• How long are you willing to trade?
• Do you tackle risks head on or avoid it?
• Are you after dividend payouts or stock growth?

Trader's Corner

Technical Analysis is used in trade, so you may have to analyse and interpret charts for the most part until your eyes cross.

Management – a good entry will determine your odds while a good exit will determine your profit. The amount you can afford to lose will determine your stop loss in between.

Volumes – reflects market activity, especially the supply and demand of a particular stock. A stock with a high volume is pretty much the like the hottest item in the store window. Traders are willing to put their money on the line, confident of the stock's movement in the market.

Overall trend – trends can be difficult to identify but it shows a stock's movement in a period of time

Support and Resistance – a good indicator of trend reversal, a consistent level of resistance indicates how high a particular stock can go, traders can opt to take their profits because its proven that the stock will not move past this level

Investor's Corner

Fundamental analysis is used in investment, and focuses on the value of the company. The method of determining its value varies from one investor to another.

Intrinsic value – pertains to the actual value of a company as opposed to the its market value. This is usually calculated by summing up the company's future asset and discounting it to its present value. Value investing is used by Warren Buffett, one of the most famous investors in the world, which made it one of the most talked about methods in fundamental analysis.

Global Macro – uses economic theory, a strategy used by George Soros when he sold pound sterling during the European Rate Mechanism Crash in 1992.

These are some of the most common criteria that you will come across. Technical and Fundamental analysis are seen as two polar opposites but some figure out a way to combine the two. Whatever your method maybe, utilise one that works for you. The key is consistency.