Trading your hard earned capital requires work, discipline and commitment so it’s important to gain an understanding of what is really involved before you place your first trade.
The first step is to gain some knowledge about which stocks to buy and sell and to ensure the strategy you choose is suitable for your own personality and risk tolerance. Be sure to be realistic with your expectations. Trading is not a get rich quick scheme as many would have you believe.
Trading education needs to be comprehensive but can still be inexpensive. There is a lot of free educational material on the net by reputable companies such as E*TRADE. Remember – if you spend a lot of money on trading education you are reducing the amount of capital you have to trade with.
There are many strategies, techniques and unlimited ways to analyse companies, but research is usually broken down into either fundamental or technical analysis.
Fundamental Analysis
In its simplest form fundamental analysis can mean reading the newspaper to see what business journalists are writing about a stock. Based on this information you may decide to buy or sell your stock holdings.
More complex analysis would involve understanding what a company does and the sector of the market they are involved in (e.g. mining, banking, etc.), reading the company’s financial reports, deciding if you are happy with the company’s management team or Board of Directors, etc. Fundamental analysis is usually best used for longer term investors.
Technical Analysis
Technical analysis is the process of analysing historical data, recognising price patterns and determining which way a stock price is expected to move based on past performance. Technical analysts believe that a share’s price is the most important factor and that price is influenced predominantly by human behaviour and sentiment.
There are some great trading books on the market to get started. Here are a couple of my favourite ones:
Finally, remember this very important tip: taxi drivers and friends are not stock market advisors.
If someone tells you that a certain stock is the next “sure thing” ask yourself , “What’s in it for them?” Chances are they currently own the stock and by telling you how good it is they are trying to reinforce the reason they bought the stock. Do your own research before jumping in.
Nick Radge heads a team of technical analysts at The Chartist, reviewing individual stocks and markets. AFSL 288 2000.
This article was sponsored by ANZ E*TRADE. The article has been written for information purposes only and has not taken into account your objectives, financial situation or personal circumstances. You should consider whether it is appropriate for you. Before making any investment decision, you should seek independent advice. The opinions in the article are the personal opinions of the author and not of ANZ E*TRADE. ANZ E*TRADE does not accept any liability or responsibility in connection with the above article. ETRADE Australia Securities Limited (trading as E*TRADE Australia) (ABN 93 078 174 973, AFSL No.238277) is the provider of the ANZ E*TRADE online investing service. E*TRADE Australia is a subsidiary of Australia and New Zealand Banking Group Limited (ANZ) but is not an authorised deposit-taking institution under the Banking Act. When you become a customer of E*TRADE Australia, it will open an E*TRADE ANZ Cash Investment Account (Cash Account) on your behalf. ANZ is the issuer of the Cash Account. Apart from any deposits in the Cash Account, the obligations of E*TRADE Australia do not represent deposits or other liabilities of ANZ. ANZ does not guarantee the obligations of E*TRADE Australia.© ETRADE Australia Securities Limited 2014. E*TRADE and the E*TRADE logo are registered trademarks of E*TRADE Financial Corporation (E*TRADE Financial). E*TRADE Financial has granted E*TRADE Australia the right to use certain registered trademarks. E*TRADE Australia is not an affiliate of E*TRADE Financial.
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