One of the most challenging parts of investing in the stock market is when you are a beginner because many people just buy shares of stocks without a strategy or a plan. The result, they lose some money.
We don’t want that to happen to you, so we are sharing here five effective strategies for newbies in the stock market.
We are now in the second part of the series about Stock Market Guides for Beginners. After knowing the things you should have before investing in the stock market, it is time to identify the different strategies of investing in the stock market as a beginner.
5 Effective Strategies for Beginners in the Stock Market:
- Dollar-Cost Averaging Method
- Buy and Hold Technique
- Investing in Stock Market Index
- Investing in ETF (Exchange-Traded Funds)
- Copy Trading
1. Dollar-Cost Averaging Method
What is Dollar-Cost Averaging? Dollar-Cost-Averaging is a method in investing wherein we invest a fixed amount of cash to buy shares of stock from a company in a regular period. An example is when an investor sets aside $50 to buy shares of stock of a company every month.
Benefits of Dollar-Cost Averaging:
- Simple and easy to apply
- It minimizes risk in times of volatility
- Time tested strategy
- Learning experience
Tips How to Do Dollar-Cost Averaging Method
DCA is one of the most effective methods in investing because it is a time-tested proven strategy. The best tip we can share with you applying this strategy is buying high-quality stocks or those companies with strong fundamentals, well established, and future-proof companies.
Another tip with dollar-cost averaging method is investing for long term. This strategy works best if you do it continuously for long term. You invest in excellent companies, consistently, for long time, regardless of the market status or regardless of the price of the stock.
2. Buy and Hold Technique
Buy and Hold technique is simply buying shares of stocks, then holding them for a long period of time or until you reached your target profit or target price (TP). An example is when an investor buys shares of stock from a company, then keeping the position until it made a 25% profit.
Benefits of Buy and Hold technique:
- Easy and simple
- Lock in profit
- Trading skills
Tips How to Do Buy and Hold Technique
There are 4 factors to consider for successful trading using buy and hold technique – the stock, the entry point, the exit point, and patience. That being said, you must choose the best company to invest in.
You must also take the opportunity to enter your trade position during dips, correction, market crash, or when the stock price is fair or undervalued. Then make sure you exit or close your trade on your target price with a corresponding profit. Be patient and do not let your emotion get the best of you.
3. Investing in Stock Market Index
A stock market index is a basket of large cap companies that measures the performance of a stock market. Examples of stock market indexes are S&P 500, Nasdaq 100, Dow Jones, Ger 30, UK 100, and many more.
Benefits of Investing in Stock Market Index:
- Growth potential
- Excellent stocks components
- Less risky
Tips How to Invest in Stock Market Index
A stock market index is usually composed of superior blue-chip companies in a given country or a specific stock exchange.
If you are investing in a stock market index, you are already investing your money in numerous companies. For example, if you invest in the S&P 500, your fund is already investing in 500 prominent companies in the United States.
Newbies can take that powerful opportunity and invest using a non-leveraged position to avoid huge risks. Investing in stock index for long term is also beneficial because historical records show they grow in value.
4. Investing in ETF (Exchange-Traded Fund)
Exchange-Traded Fund (ETF) is a basket of different assets traded on stock exchange. These assets include stocks, commodities, and bonds. Some ETFs track the performance of stock market index, specific sets of stocks, treasury bonds, and commodities. Some ETFs track the opposite or reverse performance of different assets.
Read our complete ETF guide here: Everything You Need to Know Before Investing in ETF
Benefits of Investing in ETF:
- Short and Long Term
Tips How to Invest ETF
One of the remarkable things about investing in ETFs is the availability of different types of investments you can choose from whether you are investing for short term or long term.
For example, if you believe that gold will continue to grow its value, you can invest in an ETF like SPDR Gold (GLD) as it gives exposure to the gold market without the need to invest in physical gold itself.
If you want to invest in S&P 500 index but can’t afford it right now, you can alternately invest in an ETF that tracks the performance of the S&P 500 index like SPDR S&P 500 ETF (SPY). Always evaluate your goal and preference before you invest in an ETF.
5. Copy Trading
Copy trading is the ability to copy another trader’s strategy automatically. It is one of the greatest inventions in trading because you can sit back and relax while letting a professional trader do the hard work for your portfolio to grow.
If you are a beginner in trading the stock market, you can copy trade a person with similar goals and objectives like yours. Some online trading platforms offer free copy trading features.
Benefits of Copy Trading:
- Easy and effortless
- You can stop anytime
Tips in Copy Trading
As a newbie, make sure you only copy someone who invests in non-leveraged positions so that you can minimize risks. Moreover, you should check their trading background, their portfolio performance, risk-score, goals, target profit, and the types of assets they trade. If it’s similar to what you plan to your portfolio, then copy trade that investor.
If you are a long term investor like me, feel free to check out how to copy trade my portfolio here: “How to CopyTrade My Global Portfolio.”