Some Basics Tips When Trading in the Stock Market.

The first thing to do is to at the opening of the stockmarket is to check last nights closing share price.

1. If you were going to sell, has the share price reached or dropped at your pre selected exit point?

2. If the share price went down, was your stop loss activated? (If you are not familiar with stop losses, please see a previous article on this to clarify.)

3. If you were buying stock .A TIP for you here do not leave open overnight AT MARKET orders. You will most definitely end up paying more than you bargained for.

4. Always LIMIT your order to the price you want to pay. Once this is done and you are up to date with your share portfolio then you can progress to you next task.

5. After the buying and selling of stocks is under control I then start to identify my next trading opportunities.

6. I select a stock from a list that I have compiled earlier. I scan the stock’s data base; check the bar charts and the trendlines. If everything looks good , and presuming I have capital available to purchase the stock ,I proceed to step three.

7. Firstly I recheck to see what the stock price is. Then how many of them do I want i.e. 5,000. Ascertain is it enough to make a worthwhile profit?

8. If your funds are limited to $ 500. { MINIMUM ASX PURCHASE} Then depending on your brokerage which on average will be $50.00 [that is for buying and selling] there is 10 profit nets you only $ 50.00 per sale.

9. After you have purchased your new stock, [at the best price possible of course] set your exit target price goal so you know how much profit you want to make when the stock has been sold. Do not be greedy. Then set your stop loss into place.

10. Depending on the volatility of the stock keep a watchful eye on them .Try not to have too many irons in the fire when you first start off. One or two stocks are ample when you first start off.

11. This is only a very rough outline to get you started you will soon work out what suits you best depending on your time commitments etc. Now to look the dangers and risks you will encounter in the stock market.

The Dangers and Types of Risks you will encounter in the Stock market.

Your investment decisions need to take into account several factors.

Your investment objectives risk and return preferences and the time frame involved. Generally a higher return is subject to a higher risk. Accordingly a low risk portfolio invariably means lower returns.

Below we shall discuss different risks in more detail.

1. Market Risk.

The factors involved here are economic, technological, political or environmental issues. All of these can and will impact on the returns on the investment in the market.

2. Interest Rate Risk.

Interest rate changes will have a direct or indirect impact on your investment or property. Depending on whether they rise or fall.

3. Credit Risk.

Usually this involves the risk of a third party defaulting on their financial obligations. Which of course could have serious ramifications for you especially if their financial contribution impacts on your own financial commitments and the stocks you have invested in?

4. Inflation Risk. Inflation can cause an investment to lose its purchasing power over a period of time. It will also have a negative effect on cash or fixed interest investments.

5. Currency Risk.

International exchange rates can affect your investments particularly if they are overseas. This applies mainly to managed funds or stock investments which have the majority of their investments in the overseas markets.

6. Liquidity Risk.

If your investments are either in the share market or in cash then liquidity isn't usually a problem as they can be easily be converted. Unfortunately this does not apply to property investments or term deposits where a financial penalty can be realized through early withdrawal of the funds.

One of the major ways you can minimize risk is to by not having all your eggs in one basket. In other words diversification will ensure that you have maximum exposure to the returns of differently performing assets. Some of which will rise in value while others will mark time.

This means that your best performing assets will offset the worst performing ones. Which will result in an investment portfolio’s volatility being reduced which in turn delivers a better risk adjusted return