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Strategies to invest in stocks

Strategy is a plan that helps you chooses the actions you buy or sell. If you are new to the stock is good to have lucid mind before choosing a strategy. If a certain strategy makes sense for you is better to investigate further.  Take some time to find a strategy to bring you profit. Also an investor must consider several types of strategies in his work.

Whatever strategy will be chosen following factories should be considered:

  • A strategy is good as long as it is used, applied real.
  • Not all strategies are applied to all capital markets. There are strategies for the spot market, others for derivatives, forex, bonds, etc.
  • Do not be devoted to strategy as long as you lose money (means it doesn’t suits you). The strategy is good if you get money on it.
  • To find strategy that suits you perfectly takes time. There are no secrets to finding it, just to try, to test it live.

Below we will analyze some strategies for the spot market (shares):
Buy and hold strategy
It is the most popular, but does not seem as simple as may appear. The reason of this strategy is that if you buy a stock (long term) and keep at least a year then if you will make a profit. The risks are minimal or nonexistent.
Advantages:
1. You have not always to monitor the evolution of the exchange.
2. There are paid less commissions since there are not often traded
3. It is easy to apply
4. Usually works on a bull market (growth).
Disadvantages:
1. Typically investors sell stocks only when special events occur to the issuer.
2. In a bear market is not recommended
3. Not applied to all actions. Usually avoid the speculative ones.

Buying on the dip
It’s applied when an action lowers the price.  If you think that the declines is temporary, and then buy more shares. As the stock goes up after a while, previously purchased shares at lower prices will have increases that bring profits. It is risky and less used by investors. Usually this strategy is used by those who win previously on the same action and on the same way.
Weaknesses:
Usually an action doesn’t have an only one decrease but much more and it’s likely that its price decrease more, and the price decreased is not be temporary, so do not return.

Bottom fishing – look for bargain stocks including unwanted actions (shunned by investors).
To fish in deep, something like this can be described this strategy, namely to look for shares at a price so low, that it is considered a minimum. Bottom of the action can be so low that you may consider that it have no where to go down.
Weaknesses:
The danger is that you never know exactly when the minimum was reached; some of these companies can go bankrupt.
Many stock prices tend to stay minimum prices for longer.
Investors who apply this strategy should be patient and disciplined since the stock price increases to a convenient value.
Being ignored by most of investors actions liquidity is often inappropriate.

Buy on decline
It is based on a plan drawn up before. It used when you have some cash and buy some shares regularly.  It’s consists on currently investing (say monthly) a sum of money in the same action.
Strength:
For actions that price down, your average cost decreases as well, improving efficiency in the future if further share price growth.

Values Investing
Buy quality companies at cheap price. Investors of this strategy use fundamental analysis (FA) to pick good stocks that are bargain compared to what they have in portfolio. Investors are long time (TL) and wait 1-2 years as the issuer actions to become profitable.

Growth investing
This is about buying companies with growth potential.
It is one of the most used strategies. Investors use AF to find shares which the growth rates are generally higher than the economy or other companies in the field. They follow issuers with annual increases of 15-20% for the next 3-4 years
Advantage:
The results can be formidable for investors, large price increases are noted.
Disadvantage:
Actions can be risky.
Issuers usually do not give dividends; net profit is used more for development.

Growth for reasonably priced
Investors combine the last two strategies for action value and increase of the issuer, they follow the action based on the increase but they will expect to get a reasonable price later.

Momentum investing
This means to buy high and sell higher. Investors are based on growth and pursue actions whose price is ready to grow explosively. AT is used more for short-term actions which have this tendency.
It is a difficult strategy because stock prices can explode in any direction and can lose a lot of money.
The strategy is good for a bull market (price increase) when is a high liquidity. In a bear market is well to avoid.

Contrarian investing
Doing the opposite of what others do. Investors opposite (reverse direction) using AF to find quality stock issuers with a P / E low that other investors abandon them. Investors use more knowledge and information, and patience to find those actions, sometimes the most hated by majority of investors, which may exceed the market after a while.
There is a subset of investors – investorplators, using AT and follow the minimum of those actions unwanted by most investors. They are a combination between investors and speculators.

There have to be pointed out some important conclusions:

- It is obvious that to make money on the stock market you need a plan / strategy for each share of portfolio combined with discipline;
- No one can say that an action can be applied to only one investment strategy;
- You need time and especially of intense activity on the stock market to find you the strategy that suits you best;
- If there is anyone who still believes that can earn money on market just sitting at the computer and watching daily quotations without studying evolution and applying investment strategies that person should be seriously review if this is the most appropriate place to make money for him.
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