How to trade Great Stocks? Here's the Strategy - How to generate capital in the stock market? Simple. Buy low and sell high. Well, that stock trading strategy works great if you happen to get into a rising market, it probably won’t work in a choppy market and definitely won’t work in a declining market. Here are a few strategies that you might want to explore.
Buy Dividend Paying Blue Chip Stocks
With this stock trading strategy, you are looking for high quality, proven companies, that have fallen along with the overall market. Look for companies who continue to provide excellent products and service, but, sales are off a little or external events have made investors jittery. The idea is to find stocks that are at or near their 52 week lows and buy them before they go back up again (they almost always do!) While you are waiting for the price to rise, you will enjoy a high dividend rate based on the share price. For instance, suppose a company pays $1.00 per share in dividends. If the stock is selling at $50.00, you effectively will be earning 2% on each share you own. However, if the price was beaten down to say $25.00, that same $1.00 dividend would be a 4% return. While the market recovers, the price will eventually go back up and you’ll benefit by the rising share price. Thus, you can earn money from both share appreciation and dividends.
Buy A Diversified, Balanced Portfolio
Many people make the mistake of thinking that buying 5 or 10 stocks is equivalent to having a diversified portfolio. Unfortunately that is not often the case. If you buy 10 stocks, all in technology related fields, you have not diversified at all. Instead, buy a consumer goods company, a pharmaceutical company, a financial services company and so on. Diversifying means spreading your risk across different companies that do not act in lockstep with each other. While biotech companies may be having a great day, banks may not be doing well. So if you have a balanced portfolio, one stock may go up and one down, which limits your risk. If you do a little research and find companies that behave differently from each other, you can set up a good, balance portfolio.
When to Sell
Don’t be greedy. Take profits when you can. Waiting for the price to keep going up is a fool’s game. No one has perfect timing and chances are, greed will cost you money.