Those who deal with stock exchange trading will surely have stumbled across one or the other wisdom of the stock exchange. The question now is to what extent the wisdom on the stock exchange is justified. Statistical evaluations can be used to get to the bottom of the truth content of many a market wisdom. Some wisdom and stock market spells are many years old. Changes do not stop at the stock exchange either, so the question arises whether these wisdoms still hold today. In the following article, we list various wisdoms that relate to trading on the stock exchange. Exchange trading should not be started without a sensible strategy. Can stock exchange wisdom serve as the basis for a strategy?
Table of contents
- 5 stock exchange wisdom, from successful investors
- Education offers, demo account & Co.
- Chart Analysis - Tools for Trading
Trade DEGIRO now with the stock portfolio test winner
5 market wisdoms, from successful investors
Exchange wisdom number 1: The trend is your friend
One of the most important and well-known exchange wisdom is "the trend is your friend", which means nothing else in German, like the trend is your friend. This wisdom on the stock market assumes that an existing trend will continue. What sounds simple at first is not. In order to be able to use a trend for the trading decision, it must first be recognized. But when can you start talking about a trend? If a price moves upwards over three trading days, is that a trend? If there are no signs of a trend reversing, you can continue to bet on it. Positions should not be sold prematurely if there are still no clear signs of a price change.
When trading with options, the trend following strategy is in demand among various investor types, An option is based on a certain underlying, which can originate from the asset classes equities, indices, raw materials and currency pairs. Call and put options are based on rising or falling prices. If an underlying shows an existing upward trend, traders can set a call option. It is assumed that the trend will continue for a while. To be able to better assess course development, a certain amount of specialist knowledge is required. In addition, the price data can be analyzed using charts.
Setting on an existing trend can prove to be a profitable strategy. However, there is no guarantee that the strategy will work every time. Prices are subject to fluctuations that traders cannot predict with certainty, even if extensive chart analysis is carried out. The current events on the market should also be kept in mind in order to be able to react to price changes as quickly as possible.
Market wisdom number 2: Risk arises when investors do not know what they are doing.
None other than Warren Buffet expressed the wisdom of the stock market: "Risk arises when investors do not know what they are doing". Anyone who says that trading on the stock exchange is not a job is usually wrong. Before buying a stock, traders should find out about the company. The industry in which the company is located and what the latest news about a stock corporation are is also important for the investment decision. It is advisable not to go into the trade unprepared. In order to keep the risk as small as possible, extensive information gathering should not be neglected. This should also be done on the basis of daily updated course data. The historical price data can also provide further insight.
Not only the price of the share should be analyzed, but also the functioning of the investment product should be fully understood. For example, if you want to trade CFDs on shares, you should be aware of the leverage effect. The leverage can work in both directions, so that there are not only attractive return opportunities, but in the worst case, the total loss or a margin call. Opportunity and risk of an investment product should always be weighed to find out whether the investment product also fits your own risk appetite. If an investor knows nothing about a stock corporation, the risk of making the wrong investment decision is comparatively high.
Traders should think before making a trading decision. The investment objectives should be set and the personal risk appetite should be included. Information about a stock company should be obtained before the stock is bought. An overview of the market is also an important aspect.
Trade the test winner DEGIRO now at the stock portfolio.
Number three on the stock exchange: Anyone can speculate. To do it at the right time - that's the art.
The stock exchange and finance expert André Kostolany once said: "Anyone can speculate. To do it at the right time - that's the art". When speculative trading on the stock exchange, the correct timing is important. However, it can be difficult to find the right time to buy or sell a security. When making trading decisions, traders should not be guided by emotions. Emotions can show themselves as poor advisors when trading on the stock exchange. A stock should not be bought out of greed, but also not sold too early for fear or doubt. If you sell a share at the wrong time, profits can go through the rags. A loss can be suffered if a share purchase is only realized from the point of view of wanting to make quick money.
The display of prices in real time is of particular interest for traders who want to implement short-term trading. Daytrader open and close a position within a short period of time or within one trading day. Therefore, current courses are extremely important for the right timing. The trading software can be used to find out real-time courses. It should be borne in mind that real-time prices may not be displayed for various exchanges.
The right timing is crucial for successful exchange trading. If you do not include the right timing in the trading decision, you take an unnecessary risk. The basis for buying or selling a security should not be emotions such as greed or fear.
Wisdom number 4: Patience is the top virtue of investors
The stock market saying comes from the American investor and economist Benjamin Graham: "Patience is the top virtue of an investor". This wisdom on the stock market is probably less helpful for day traders, who implement the buying and selling of positions within one trading day. Anyone who buys a stock in order to consider it long-term should go through the wisdom at least once. The "buy and hold" investment strategy, ie buy and hold, also aims to hold a security for the long term. Buy and hold can be applied to various types of investments. Also for example on trading with ETFs.
It takes patience to hold a share in the portfolio for many years. Before the share purchase is realized, it is absolutely necessary to consider the growth opportunities of the respective stock company. If you only trust your patience and have not dealt with the company in detail, you are taking an additional risk. A stock that was well positioned in the past does not have to be in the future. Traders who implement the buy and hold strategy should not be put off by short-term price fluctuations. Emotions are also out of place with this strategy. Fear and doubt in particular can lead to a share being sold prematurely, even in the event of short-term price fluctuations.
If you want to invest in shares in the long term, you can do so by considering the buy and hold strategy. It is important that traders are not confused by short-term price fluctuations. Of course, profits are not guaranteed with this strategy either. Obtaining information about the respective company should have preceded the purchase of shares.
Act now at the DEGIRO test depository.
Wisdom number 5: Everyone can make money with shares if he only does his homework
The investor Peter Lynch gave the wisdom on the stock exchange: "Anyone can make money with shares if they only do their homework". The low interest rate phase hits savers particularly hard. Some traders are looking for an alternative to overnight or fixed deposit investments. The entry into stock trading is avoided by some traders with a conservative investment strategy. A daily or fixed deposit account is a comparatively safe investment. Whereas the price of a share cannot be predicted with certainty. To make the right investment, it is essential to analyze the share when trading shares. Traders should also deal with the share before each share purchase in order to be able to better assess future price developments.
How exactly the homework that a trader should do depends on the respective investment strategy. There is no one promising method. There are many influences that can make a share price fluctuate. Indeed, it is hardly possible to include all of these influences in the trading decision. If you want to invest in stocks yourself, you should plan a certain amount of time to do your homework. The investment amount that is to be used for stock trading should also play a role in determining the investment objective.
If you want to make your own stock selection for your own account, you should be careful before buying deal with the shares. What can future course developments look like? There is of course no answer that is guaranteed to be true. However, a detailed analysis can provide clues. In order to deal extensively with a stock title, it takes some time that the trader should invest. If you do not want to determine the stock selection yourself, you can get support from a financial expert. However, this can be associated with additional costs.
Educational offers, demo account & Co.
So that traders can do their homework, some online brokers offer learning materials, which are not only tailored for beginners, but also deal with special topics for advanced traders. How extensive the selection of learning and further training opportunities shows depends on the respective broker. Interesting facts are covered in webinars and videos, which traders can follow from their home PC. Knowledge of the market and stock exchange trading can be expanded through the use of free educational offers and used for trading.
With the demo account, traders will find an opportunity to gain initial experience in trading. The trades via the demo account are not associated with any risk, since the virtual amounts are traded. Traders should be able to use the functions of the trading platform correctly. How to use the functions can be learned via the demo account. Anyone who has already put together a strategy for trading can try it out via the demo account. It must be clarified in advance whether the demo account is one of the free services of a broker. Registration is required for some demo accounts. Some demo accounts can only be used for a few days, while others can be used indefinitely.
Traders can find various ways to prepare for trading on the stock exchange. Some brokers show an extensive area of education that traders can use to expand their knowledge of exchange trading. In addition, the demo account also presents a tool to prepare yourself for trading with real money.
Now trade with the test portfolio DEGIRO test winner
What Exactly is Stock Trading?
Chart analysis - tools for Trading
Technical analysis, also called chart analysis, is an important tool for investors. The chart analysis can be used to estimate the development of a price. In this way, the right time for buying or selling can be determined. It is also the case with chart analysis that the price development cannot be predicted with certainty. However, the course history tries to shed light on this. The price development of an underlying is shown on a chart. The following types of charts can be used for the display:
- bar chart
- candle stick chart
- lines -Chart
Understanding and analyzing the charts at first may not be so easy for beginners. However, this can also be learned. Some brokers and also on the Internet also have explanatory videos for chart analysis that are tailored to the needs of beginners. The basics of chart technology should be learned in order to be able to use the knowledge for your own trading decision.
Good results can be achieved by using the technical analysis, even if the development of a price cannot be reliably predicted using chart technology. Which chart variant is used for the analysis must also be considered. The various chart variants also show advantages and disadvantages.
There are some stock exchange wisdom that come from successful investors. The 5 wisdoms mentioned are only an extract. The extent to which one of the wisdoms is successful for one's own trading on the stock exchange cannot be answered clearly. Traders should always think about personal investment goals before entering into trading. If you want to trade successfully on the stock exchange, you have to deal with the matter and analyze prices. The current market overview also proves to be relevant. There are various tools for trading, such as chart analysis, which investors can use for their own strategy. To reduce the risk of an investment, it is necessary to deal with the financial product.