Buy Stocks Online
Online Trading Made Easy
Buying stocks online in the UK in 2016 can be a little bit of a challenge for many people. However, it doesn't have to be. What is important is that you find a system that works well for you. Trading is highly psychological as all of your decisions need to be made quickly if you are a trader. However, if you are a long term investor, then you are looking to buy and hold companies. Either way you choose, you must determine a set of guidelines that works right for you.
If you want to buy stocks for the long run, you must first understand money management. Generally it is said that regardless of how you trade, you should never ever risk more than 5% of your capital on a single trade. I have some disagreements with this, particularly if you already have consistent income going into your account. However, you won't go wrong if you use this strategy, and there's no reason to worry about it.
This means that you will have to either set a stop loss so that if a stock ticks near the 5% of your overall portfolio, your stock will be sold as soon as possible, or position size. If you are an option trader, you may wish to buy a protective put at the strike price of the 5% loss mark of your portfolio or higher. That may be safer as a stop loss won't necessarily protect you as an overnight drop in the stock could still cause a lot of damage, however, it's certainly a starting point.
Additionally you should possibly consider making purchases that are 2% of your total investment capital. If you have 100,000; you should generally make purchases of $2,000. If you do this, no single stock can take you below the 5% loss, however, collectively if they all dropped 5% or more you would. By positioning your purchases this small, you give yourself the ability to add on additional purchases that are of larger position sizes. If the stock reaches a second buy point, you can buy more at the breakout point. If you are a "dip buyer" you can buy whenever the stock dips lower.
As an investor, you should set limit purchases, so you can grab the stock as it dips below certain thresholds. Perhaps accumulating a position by continuing to make these 2% of your portfolio purchases you can buy every 2% drop from your last purchase. Or you can stagger the purchase prices so the first 2% drop you buy more, then 5% below that you buy more. You can continue to increase the size of a given stock, just as long as you remain diversified.
Now we need to get into properly diversifying your account overall. You probably want to determine a given set of parameters when investing based on your current view. For example, consider the following:
Basic Materials: 10%
You will strive to diversify so that you have several purchases in each of these sectors until you have the above closely matched. If you are using 2% purchases, that means you will generally have about 5 stocks in each sector to at least consider. However, if one stock stands out, you can accumulate a single stock position for the entire sector. Additionally, if you do not have that much to invest, you may just consider investing the entire amount into 1 or 2 stocks each. So you need to determine the best stocks in each sector and map them all out.
Although depending on your overall view of the market, you may more aggressively bet on certain sectors, which means you will be less aggressive in others. Now when buying stocks online, you have tools that can help you set certain restrictions on purchases. This is where limit orders may come in handy.
You can use a limit buy to buy more stock when your position drops significantly. This will allow you to increase your exposure when the sector position may decay from 10% to 5%. This will allow you to use your cash position to increase the other areas of the market. Now as your other positions gain, you may wish to sell a stock. You can again set up your account so that if a stock reaches a certain point you will sell stocks. Personally, I prefer to use a trailing stop. This will allow you to ride your gains more effectively.
For example, if a trailing stop of 20% is set, that means that the stock will not sell unless if goes down 20% from it's highest gain. This will give the stock with momentum the room to run. However, as your position in one area gets increasingly large, you will want to tighten up the trailing stop from 20 to 15, then from 15 to 10, and 10 to 5. Ideally how this will work is that when the market is under a sector rotation, certain areas of the market will sell off, and then the investors will use that money to buy stocks in other areas.
This strategy does not do very well if the market crashes, which is why you may wish to consider looking into learning about hedging strategies. Since this is buying stocks online made easy, we won't go into detail here. Now this guide only is an outline on buying stocks, if you actually want to learn how to pick individual stocks within each sector, I encourage you to consider investing some time learning what makes a stock worth buying.
Basically the idea is that you will research a companies fundamentals and continually update the list if another company pops up. This will help you stay diversified and allow you to only invest in the best names in a given sector. While I left finding the stocks up to you, I will say that you can use stock screeners that are available online and use the screener to limit each screen to a given sector. Then simply find the top 5 or less companies within that sector based upon the parameters for the stock screen that you set.
|Although this is a great brief guide towards a good money management strategy while buying stocks. However, it is also important that you learn how to choose a broker, how to sign up, and which stocks to pick as these are all other factors that should be considered before basic investment tips. If you want to learn about making money online with stocks, you also may consider learning about trading systems. The above advice is only a guide towards money management and diversifying which are important in any trading system, however most trading systems also encompass strict buy rules, and they have a plan of action for selecting stocks.|