Successful Stock Trading Strategy

To become a successful stock investor or trader, you must put in maximum effort to achieve it. Investors who buy and sell stocks based on "feeling" or "guts" sometimes get lucky, but most of the time they are wrong. So, how can you trade on the stock market successfully?

Being right or lucky every time is not a winning stock investment strategy. In fact, the steps to being successful in stock market investments are quite simple, but it's the execution that is difficult. Just like a soccer team needs a strategy for every game, an investor should not enter the stock market without any strategy at all.

Setting Some Financial Goals and Choosing a Strategy

This may sound cliche, but it's true. You have to know where you're going so you know when you've reached your destination. Your goals should be focused and specific. A goal like "I want to retire in 20 years with assets" is not specific enough.

A good target/goal would be "I am currently 40 years old and want to retire at age 65. At age 50, I will build my assets to reach 1 Billion. At age 55, my assets will become 1.5 Billion. At age 60, they will become 2 Billion, and at retirement, they will reach 3 Billion."

Those numbers may not be right for you and you may have different financial goals, such as buying a house or a car. However, the point is that you should focus on specific financial goals with a specific timeline in order to be successful.

Trading on the stock market to be successful requires the right strategy that works for you. There are three basic investment approaches: value investing, growth investing, and a combination of the two. You may have heard of other approaches, but these three are the foundations of the others.

Trading on the Stock Market: Three Basic Investments

Value Investing

Value investing may be the most difficult, but it offers the best long-term returns. Investors who use the value investing principle find companies that are traded at a price far below their actual market value.

The company may be unpopular with the stock market because it is not in a hot stock sector. Or it may be a company in an uninteresting industry that investors find boring.

This form of value investing was discovered by Benjamin Graham and then popularized by the legendary head of Berkshire Hathaway, Warren Buffet.

The difficult part of value investing is how to identify and analyze potential company candidates. Deep analysis into a company's finances is needed to determine its true value (intrinsic value). This must answer why this value is at odds with the company's stock price on the market.

The reward is significant when the stock market finds the stock and raises its price from a low point. You have already bought it at the right level. This may require you to hold the stock for a long time and require you to regularly reassess your valuation.

Growth Investing

In addition to value investing above, another way to be successful trading on the stock market is by applying the principle of growth investing. Growth investing involves finding companies with strong future growth potential.

You should avoid falling stars that shine brightly in the stock market for a short time and then disappear. You should look for solid companies that are ready to grow sustainably.

Growth investing involves more risk if you focus too much on small-cap stocks with fast growth potential. However, these companies also have extraordinary opportunities for long-term success.

There are large-cap stocks in strong growth positions. Your task is to find these stocks that fit your targets, strategy, and risk tolerance.

Approximately more than 60% of traded companies are large-cap stocks. You should choose them and adjust them to your financial conditions and goals.

Mixed Investment

The next way to trade on the stock market successfully is by applying the principle of mixed or balanced investment. This investment is a combination of value investment and growth strategy.

By combining both and practicing the right asset allocation, stock market investors can achieve the best of both. You can customize mixed investment to increase or decrease potential returns and also risk to suit your targets and time frame.

Personal risk tolerance is an important element in your investment strategy. If you are comfortable with losing some of your initial investment in the pursuit of greater results, it is advisable to put more of your investment money into the stock market.