This article is mainly intended for the most neophytes in the world of the stock market and financial markets more generally. We begin to also be useful for small investors who still have little filming.
Start investing money in stock market
Next, we will see 20 to start investing money in stock market profitably and sustainably in the long term.
Train and learn to invest in the stock market
In the short term, you may not notice the difference because of the beginner’s luck. In the long term, we can assure you that there will be a huge difference.
In addition, errors in the stock market can cost very expensive since your capital can vanish almost overnight if you are not careful and do not know what you do.
There are many ways to train. It is best to read experts books or follow some formations they propose.
Search for a good broker
It is essential to have a good broker. There are many of them. Some are very good and others of doubtful quality. That is why you must compare and look for information about the broker you are considering using. The essential criteria are that the commissions are competitive, that allows you to invest in a significant number of stock markets, and that is a reliable and agile platform.
Start with a virtual account
Before launching to operate in the stock market with cash and sound money, it is highly recommended that you take credit with a paper trading account. These are accounts where you can experiment with all the utensils at your disposal but where you operate with virtual money. So if you make mistakes and the course of the actions in which you have invested low, you will not lose anything, but you will have learned a lot. Most brokers offer these types of accounts, and it is possible to open them very quickly.
Through these virtual money accounts, you can acquire the bases to invest in the stock market, experience everything you want, and try different strategies and instruments.
Only once you really understand how the stock market works and how you can make money with it do we advise you to start trading with real money. Learning time will depend a lot from one person to another. The important thing is that you do not hurry and do not rush to operate with real money.
Understand and learn to use the different types of orders
Many orders can be used to invest in a bag. As an example, InteractiveBrokers supports more than 60 different types of orders and algorithms.
But do not panic, because to start investing in the stock market only need to know how to use a handful of orders. The three most common orders are:
Market order: they are purchase or sell orders at the offer or demand price of the market. A market order can increase the likelihood of execution and the speed of execution. Unlike a limited order, a market order does not provide price protection and can be executed at a lower / higher price than the bid / ask current.
Limited order: they are purchase or sell orders at a specific price or better. The limited order ensures that if the order is executed. It will not do so at a less favorable price than its limit price. But it does not guarantee that it will be executed.
Returning to the previous point, precisely through paper trading, you can learn to use these and many other types of orders without fear of making mistakes.
It favors the actions
In the long term, the actions (as a whole) always go up. We can verify this by seeing one of the most important indices in the world, the S&P 500 index, for which we have found data since 1877. The graph below shows the evolution of the index without taking into account inflation.
It is important to realize the scale of the graph. In 1877 the index was 2.73, and on May 2017 it was almost 2,400. In other words, the index has increased, on average, 6.25% annually since 1877.
Thus, in the long term, the actions tend to rise, and the return we can obtain from them is higher than other assets that carry more risk. On the contrary, they can help us increase our assets quickly and more easily than through other assets.
FOREX (also known as FX) is the currency market where currency pairs are traded. The most common couples are EUR / USD, USD / YEN, and USD / GBP.
The best way to understand it is with an example. At a change of € 1 = $ 1.05, with € 1,000 we will buy $ 1,050. If over time the dollar appreciates and the change becomes € 1 = $ 1, our $ 1,050 then becomes € 1,050, which will have earned € 50.
While it sounds very interesting first, the big problem with FOREX is that it is very difficult to define the intrinsic value of a currency, especially for beginning investors. It is very difficult to determine the direction in which the change is going. And then we are not talking about investment but pure speculation, which is what we want to avoid.
Runaway from binary options
Binary options are financial products that allow you to bet on the rise or fall of a certain underlying asset.
It is a financial product that has a certain complexity. In addition, it carries a very high risk (due to the fact that if it is not “right,” all the capital invested is lost). So you have to be very careful and know well what it does.,
That is why you have to stay away from binary options. Especially when you are starting to trade in the stock market.
Do not invest in money the money that you cannot afford to lose
This tip is a classic, and you have probably heard it. Although in the long term, the stock market always rises, in the short term a lot of money can be lost, either because the different instruments at our disposal are not well controlled. Because we have not chosen well the actions in which we invest.
That’s why you don’t have to put all your capital in the stock market. First, we have to establish a certain heritage and when we have saved enough to face possible eventualities. We can use the rest to invest in the stock market.
You have to be prepared to lose
This is a somewhat different point from the previous one. The Pareto law applied to the stock market implies that 80% of the profits on the stock market come from 20% of the shares. Of the 80% of the remaining shares, some will generate small profits, and others will generate losses.
In other words, it is statistically normal that we do not earn money with all the shares in which we invest. With a few we will earn a lot of money, with the majority we will not obtain losses or gains, and with a few others, we will have losses.
What matters is that, as a whole, our portfolio grows over time, and that is why nothing happens if we lose money with a specific position. The goal is, on the one hand, to win more frequently than we lose. On the other hand, we must ensure that our profits exceed the losses. If we achieve these two objectives, our assets will grow sustainably in the long term even if we have losses with some positions.
Start with a small capital
Bag errors can cost us dearly. But making mistakes is not a bad thing, quite the opposite. By making mistakes, we will learn from our mistakes, and so we can improve.
But it is better to make a mistake with a small capital than with an important capital. That is why it is better to start with a small capital, and as you take ease and confidence, you can increase the size of your portfolio. This will minimize the risk of losses while maximizing your profits by experiencing new strategies that offer greater profitability.
Define your risk profile
There is a direct relationship between risk and return. The greater the risk we are willing to assume, the greater our potential profits (but also our potential losses).
Depending on their situation, each person will be willing to assume a higher or lower level of risk. You must define what your risk profile is. For this you have to ask yourself the following question: what percentage of your invested capital are you willing to lose?
Define the time you want to spend on the bag
Broadly speaking, there are two ways to invest in the stock market:
- The trading
- The stock market investments
Depending on the time the actions are stopped, we will talk about intra-day trading or scalping. The actions stop from a few minutes to a few hours or swing trading. The actions stop from a few days to a few weeks. This way of trading in the stock market can take us from several minutes to several hours every day.
In contrast, investments in the stock market are longer-term operations. In this case, shares are also bought and sold in the hope of obtaining a profit. This way of trading in the stock market will not take us more than a couple of hours a month, at most.
One strategy will be more appropriate than another for you. That said, we believe that for novice investors, it is better to stay away from intra-day trading. It requires a lot of cold blood, which is usually lacking at first.
Do not spend the day stuck to the screen
Choose the investment strategy you choose. We strongly recommend that you do not spend the day stuck to the computer screen following the course of the actions in which you have invested.
If we spend the day following the course of the action, apart from wasting our time uselessly, it will generate uneasiness and lead us to irrational operations. To nothing we see that the course of the action goes down, we will be tempted to sell to minimize losses, without thinking that it may be a small downturn before going up.
It is better to devise a position entry and exit strategy in advance and leave the orders programmed (on all limit and stop orders). So these will run without our needing to be in front of our screens.
Our recommendation is that you look at the bag twice a day. Once towards the middle of the session, and once towards the end of the session.
Focus on the technical analysis of the actions
The value investing (which has become such fashionable thanks to Warren Buffet) is based on a thorough fundamental analysis. It is an excellent way to invest in the long term when you have solid stock market knowledge.
However, when one is beginning to invest in the stock market, the fundamental analysis is too complicated. It is better to focus on the technical analysis, which consists of the analysis of graphs to try to predict the future course of the action. It is much more visual and, therefore, easier to analyze for beginners.
Use the daily or weekly time units
With the previous point, when we analyze a graph, there are several ways to visualize the evolution of the share price. The unit of time (also called candles) can be a minute, an hour, a day, a week, a month, etc.
Sometimes, units are too short (minutes, hours) to get a good idea of the trend that the action will follow. Other units of time are too long (monthly, quarterly) and do not adequately reflect daily / weekly fluctuations in the share price.
So when we are starting the best thing is to have a daily or weekly view of the course of the action. It depends on the time we want to devote to the stock market and our risk aversion.
Use adapted and appropriate instruments
All brokers allow technical analysis by means of graphs. For example, InteractiveBrokers offers great graphics.
However, we do not recommend using the broker to perform the technical analysis when it is starting in the stock market since it is excessive – and unnecessarily complex. Therefore, we only recommend accessing the broker when an order is to be placed and not to choose the actions in which you wish to invest.
To carry out the market analysis, we believe that it is preferable to use simpler tools such as ProRealTime.
Consider the liquidity of the shares
The technical analysis will allow us not only to see the evolution of the price, but also the volumes of shares that are bought and sold in each stock market session. If the volumes of shares traded are high, we will say that given security is liquid. On the other hand, if the volumes of shares traded are small, we will say that the title in question is “narrow.”
In other words, the liquidity of security determines the degree of difficulty with which one can enter and exit the position.
Unless our portfolio will be really small (for example, a few hundred euros), it is important to take into account the liquidity of the title in question before entering a position. We would not like to find ourselves in a situation where we cannot leave the position at the moment or at the price we want due to lack of a buyer on the other side.
When we carry out our technical analysis, it is important not only to look at the price candles. But those of volumes negotiated in each session to give us an idea of the liquidity of the title.
Do not be influenced by the media
The media love to be alarmist. If you hear what they say you would never invest in the stock market: when things are going well they say that it is not a good time to invest since there must be a bubble that is about to explode. When things go wrong, you don’t have to invest either, since the course of the actions will only go down.
We believe that it is important not to be influenced excessively by the media. On the other hand, there are much other specialized media from which we can learn a lot. You have to know how to distinguish useful information from mere noise.
Leave sales short for later
The short sales are used when we believe that the course of action will fall. In this case, we sell the stock at an X price and buy it again at a Y price. Between the time of the sale and the time of purchase, a third person (in general the broker) has lent us the action, in exchange of which we remunerate them with a small commission.
If the purchase price Y is lower than the sale price X (that is, if the share price has actually dropped), we will have earned the difference between Y and X (minus commissions). On the other hand, if the course of the action has risen and Y is greater than X, we will have lost the difference between Y and X (in addition to the commissions).
In short sales, we can lose more than 100% of our investment since there is no maximum purchase price. It is better understood with an example. If the sale price is € 5 per share and the share price rises to € 15, we will lose 200% of our investment (€ 5 = 100%; € 10 = 200%).
On the other hand, in “long” operations (when you start buying the stock and then selling it, hoping that the course of the action is bullish), the maximum we can lose is 100% of our investment if the price marries € 0. But there is no limit to what we can earn since the price of the stock can rise almost infinitely (a Berkshire Hathaway stock is around $ 325,000!).
That is why, for starters, it is better not to launch with short sales.
Diversify your wallet
Do not put all your capital in one action. Not in a single sector, country, currency or type of asset.
The easiest way to diversify your stock portfolio is through the use of ETFs. There are many of them. It is only a matter of finding the one that best suits your profile, especially in terms of currency, risk and return.
We have seen 20 tips to start investing in the stock market profitably and sustainably in the long term. All of them are important, but the one that we would like to highlight above all is the first: train and learn to invest in the stock market. The good thing is that it has never been so easy to learn thanks to new technologies, so do not miss the opportunity.
That said, it is no use learning and acquiring theoretical knowledge if we do not put them into practice. Once we have learned, we must take action if we want to get rich thanks to the stock market and not simply be theoretical experts in the stock market.
If you have any questions about it or want to share with others any other advice to start investing in a stock market that you think is important, do not hesitate to leave a comment below. Thank you very much in advance!