Highlights

• A stock trader should research in detail about market indices, trends, sector and industry performance, fundamentals and technicalities of the stock before taking any investment-oriented decision.
• Information-based investment decisions are more likely to make a profitable trade.
• When trading in stocks, keeping in mind one’s risk appetite and not blindly following trends are crucial pointers.

Stock trading can be a fascinating way to earn money, but it is a path best taken when you are well-versed with the equity market mechanism.

When trading in stocks, one must remember that while the primary goal is to make maximum profit from the stock price movements, keeping in mind one’s risk appetite and not blindly following trends are also crucial pointers.

Before going anywhere near a stock investment decision, an investor, seasoned or amateur, must first closely analyze the markets trends, the sector and industry performance, the stock’s fundamentals and technicalities, etc.

Opening up a trading account on a stock trading platform or reaching out to a stockbroker would be your starting point when venturing into the world of stock trading. And of course, you would need a wad of cash to invest, which should ideally be a surplus amount after you are done paying the bills and saving for future.

The next step, however, should not be throwing your hard-earned money at whatever is trending at the moment.

In case you are a rookie looking to explore stock market trading, here are a few pointers that could help you navigate the waters. 

Also Read : What is the significance of technical analysis in portfolio building?

First, decide on the approach you want to take in the stock markets

A stock trader can choose to make trades based on a stock’s recent price movements or follow the market trend until it reverses.

One of the more common techniques is when traders invest in stocks for long-term gains, i.e., the investor buys the stock, holds it for a longer period of time and then sells it at a higher price to earn higher returns.

Some seasoned investors also choose to explore the option of ‘buying the dip’ , i.e., when the stock price declines, in the hopes of selling it off when its prices finally climb again, hence making a profit.

Another known approach is ‘intraday trading’, where a trader buys and sells a stock within a day. While some day traders find this to be a compelling way to make money, one should keep in mind that it can backfire and result in losing the moolah.

Whatever be your approach, market experts commonly believe that it is the timeliness of your stock purchase and sale decisions that play the important role in securing significant profits.

Also Read : What investors need to know before placing a stop-loss order?

Things to consider before making any trade

• Do your homework

Suggestion from market advisors can play a role, but at the end of the day, stock market trading is a personal choice. Investors should do their own due research and decide where they want to park their money based on their own homework.

The Canadian stock market is a diversified trading universe with numerous publicly listed companies from across a range of sectors, such as technology, finance, metal and mining, energy, healthcare, cannabis, telecommunication, etc. Investors should research on them carefully and pick options that suit them best.

• It matters what you research

Before venturing into any stock, it is important to go through the company’s financial statements, fundamentals, corporate updates, history, etc. to get an idea about its performance in the market.

It is also always good to know about its business operations, assets and liabilities, profitability ratio, dividends, return on equity (ROE) ratio, and future plans.

• Time matters

Different developments and announcements about the company, or even the sector, can affect stock performances. Hence, gauging these movements and making your buy or sell decisions accordingly can significantly impact how much profit you make or loss you incur.

Also Read : How trading differs from investing: Here are three deciding factors

• Note the red flags

When a company is facing consistent losses, tax related inquiries, bond defaults, credit defaults, any objections from stock exchange regulators, audit or regulatory objections, etc.  it can be a major red flag for investors.

• The big picture

A low and/or inconsistent growth chart does not always mean a company’s stock is headed for eternal doom. The company could still have future prospects. This is where a company’s guidance or future outlook can help gauge where its stock could be in a foreseeable future.

• Does the stock have a competitive edge?

If a company has a unique business model, products or assets that sets it apart from other businesses in the market, or is an established player in the sector, its stock is likely to have a competitive advantage.

• Don’t forget the risk factors

Like most investment options, stock market trading comes with the baggage of risks. Every trade, no matter how well-researched, is exposed to some level of risks. Hence, a trader must go in knowing her risk appetite, i.e., the amount of money she can afford to lose in case of a stock price dip.

Also Read : 7 Tips To Analyze A Stock Before Investing

Bottomline

The Canadian stock market provides an industry-wide exposure to stock traders where they can embark on  varied trading opportunities. 

When explored carefully and with due diligence, stock market trading could be a decent source of profits.