Trading Strategies
It is interesting sometimes to watch new stock traders trying to make a profit from trading without the benefit of a good trading strategy. Trying to trade the stock market without a strategy that a trader is confident in is one sure way to lose hard-earned money. Such a trader is like a car without headlights in the dark and is likely to lose their funds before making any.
There are numerous stock trading strategies available to UK stock traders. Some of the best stock trading strategies are actually the simplest. It is up to the individual stock trader to find out the best strategy that can make him the most profits. It takes time and a lot of testing to figure out the best trading strategy. Some of the trading strategies to consider include:
1. Dogs of the Dow
The idea with this strategy is to buy the best value stocks in the Dow Industrial Average by choosing the 10 stocks that have the lowest P/E ratios and the highest dividend yields. The idea was that the companies with the lowest P/E ratios had the most potential for growth over the next year.
Pigs of the Dow was a derivative of the Dogs of the Dow but in this stock trading strategy the trader selects the worst 5 Dow stocks by percentage decline in price in the previous year. The hope it that the pigs will tend to rebound more than other stocks.
These two strategies are based on the premise that stocks listed in the Dow are stable and not likely to fail.
2. Dollar Cost Averaging
Dollar cost averaging is probably one of the best stock investing strategies for the investor who wishes to invest on a regular basis. The investor sets aside a fixed amount every month to buy a particular stock.
Dollar cost averaging is a long term investing strategy. The investor will gain from buying more stocks when the prices are lower and gain from the increase in prices over a period of time. It is also a great way to instil the discipline needed to save.
3. Hedging
When an investor is hedging, he is trying to reduce the risk inherent in holding a particular stock. If the investor is afraid that a stock could fall within a certain time, he can set up a put option to protect downward risk.
An investor has an option to buy put options against individual stocks or even against the stock market itself. The only problem with this strategy is that there is a limit to how much a trader can earn. However, the return in investment is assured and the investor can plan accordingly.
There are numerous other trading strategies that a trader can use to pick good value stocks. Depending on the type of stock trader you are, you have a choice between very risky strategies to very low risk strategies. The goal for all of them is to earn you a decent profit.
