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Things You Need to Know Before Investing in Stocks

09 August 20224 mins read by Angel One
Things You Need to Know Before Investing in Stocks
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When you are investing your money in the stock market, invest it right. If you do not know a company well enough, then think for a moment before you invest. Just because a company keeps outdoing itself all the time, do not think that it will never fail.

Read the company’s annual reports to understand if the company has performed well and will keep doing well in the future. A company which is presently performing well in the stock market but is showing signs of decay in their reports is a company you need to stay away from.

Things like this are extremely important when you are trading in the stock market. Do not trade if you are not doing it correctly. You will end up losing money. Ensure that you make well-informed trades, that you know everything about the company and you have done your research beforehand.

One of the most regretful mistakes you can make is to neglect earnings. If you are investing in a company, your first task would be to take a look at their earnings. You are not trading correctly if you skip this part out. A company’s earnings reveal a lot about how the company performed during a specific time frame. You can also use that to compare earnings during other quarters and find out if the company is gaining or losing in the long term.

However, if you skipped this out and invested money in a company that has a poor growth, you will start losing money. Hence, there will be no point in buying these stocks.

If you let your emotions get the best of you, there is really no point in trading in the stock market. If you feel excited when you invest in a company whose stock prices started skyrocketing suddenly, without the feel to conduct any research, then you’re doing it wrong. If you feel an adrenaline rush when you trade in the stock market, you are still doing it wrong.

Contrary to popular belief, trading in the stock market should not be an emotional process for the trader. If you as a trader get excited, then you let your emotions take control of you. You have to leave your emotions aside and let your brains decide your moves. Conduct research and formulate a strategy to trade in the stock market. Do not let your emotions build excitement and formulate rash buying sprees.

Do you find out the history of a stock before investing?

By history, we mean the movement of the stock prior to releasing their earnings and after that, whether it is moving upward or downward. Normally it will help you chart a probable course for that stock.

Are you aware of a stock’s implied volatility (IV) when you conduct your research?

Usually stocks have a greater implied volatility (the expectation of how a stock moves in the near future) before the earnings are announced due to market speculation and it often results in overpriced stocks.

Most importantly, are you aware of what kind of a trader you are?

A conservative trader would get into an options trade before the earnings are announced so that IV does not affect your buying price. However, an aggressive trader will hold their position through the earnings announcement anticipating an increase or decrease in stock prices.

If you were not sure about the answers to the questions above or said no, then you are not trading correctly.

You should always buy a stock after tracking a company’s history. Earnings are publicly available so it would not be too hard for you to establish a strategy based on your research. Discovering the type of trader you are should be the key to understanding how to trade in the stock market, so happy trading!

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