When you invest in the stock market, you need to make a plan, a stock market lesson plan, in order to achieve your success. Before you put your hard earned cash on the line, learn as much as possible to protect it when you invest.
Stock market lesson plans
1. Learn about the market.
Watch how the market functions. Many times the stock that you spent time and effort to study the financials, learn about the management team, checked the analysts opinion, studied the sector and the effect that the economy has on the product or service and watched the financial profile tanks when it was was supposedly to go rise. This just gives you more knowledge. The lesson learned on this, is that the market is not real, it's what people perceive to be real. Often stocks rise and fall on rumor and the fickle nature of the stock purchaser. It is a supply and demand market that, while it tends to have cycles, still is subject to the media and the opinion of investors.
2. Decide whether you are short or long term investor.
No stock market lesson plan would be complete without including the type of investor you wish to be. Short term investors make their decisions based on the movement of the stock and daily price change. Long term investors purchase for the growth potential of the company.
3. Use the appropriate tools for the type of investor you are.
Long term investors use company and product information found on the company website and explore the potential for growth. Their tools are "Baron's", "Dow Jones Online Financial News" and other market information centers. Short term investors use their own powers of investigation to hunt down a stock and track the movement, or short cut it with the use of a service that make recommendations on stocks to purchase.
4. Evaluate your stocks and decide ahead of time when to bail.
Particularly short term investors need to add this to their stock market lesson plan. Often the thrill of making money seduces a short term investor into holding the stock beyond the peak and they lose all the profit. Knowing when to hold 'em and when to "sold' em" is important.
5. Focus on one market.
It's impossible to follow all the stocks and maintain sanity. Focus on one sector, size or selection method when you first begin. Long term investors understand that ports are built on sound diversification, but when they first begin investing, it's impossible to learn everything about each stock on the market, so they focus on one area, buy a stock and study for the next purchase. Short term investors do not have the luxury of time, but they also do not need a balanced portfolio for their style of investing. They focus on one sector and follow the stocks in that area. Frequently they narrow the selection process by using size as a factor.
Remember the smaller the stock the more volatile. It only makes sense that a move of ten cents does not effect Microsoft as much as it does a stock that costs thirteen cents. The good news is micro-cap or penny stocks do not involve a lot of money for investing and if the increase is ten cents, it returns a nice profit in a short period. Sometimes the use of a stock picking service aids them in gaining that profit.