Things to keep in mind always while trading or investing in stocks
1. Stocks does not create money. It only switches hands from one person to another where someone loses and other benefits that marks the final price of the stock. Which means if you are getting profits on your stock position, it compromises for someone else's loss in the process. For example if you buy a rose from a farmer for a dollar and someone else is willing to pay 5 dollar for it, means that person is losing 4 dollars on it as he could have gotten it for a dollar from the farmer. Where you are getting this loss as your profit of 500% returns on your one rose stock.
2. Stocks are largely illiquid in nature. The liquidity stands for the process where you can convert your asset to the real money. Stock does seem to be a highly traded asset, however it is largely dependent on the willingness to buy by the people/traders. For example if a stock is rising 10% in one day means that there are people who are willing to buy the stock even more than 10% of its price for that day. This might be caused by some news or internal information or maybe the trend. But nowdays it's largely caused by the short positions closing on the stock.
3. The trading value of the stock is not exactly the real value you get for that if you sell in large amounts. Since the traded stocks on the exchange accounts for very less percent of the whole stock capital, it is very likely the stock fall if the seller has a lot of shares which he/she will be liquidating on market. For example for a certain stock if there are 100 buy orders on price 10, 50 buy orders on price 10.20 and 20 buy orders on price 10.50 for a stock. If someone wants to sell his/her positions of 180 stocks, that person is most likely to decrease the price of that stock. This is a small percent of larger interactions in stock market everyday.
4. Always look ahead for next 10 years of the company's profile who's stocks you are buying now. Sure every company has thier own promises and innovations. However, the cost of the stock denotes the price which the investor gets when the company itself is liquidated entirely. Which means that more the company progresses the higher its share price gets. For example let's say Intel lost its race against AMD for few years. But knowing Intel, it probably have plans already set in motion for the next big thing/innovation. It might be AI integration, smaller nanotubes or say even collaboration with different companies for their software compatibility. So, this means we can possibly see Intel shares getting higher in future. Examples like this can be seen in many companies in the stock market. Even let's say if we can see the future in renewable resources because of expected global warming, we can expect the price for silica, the solar panel companies, the chemical industries( for making batteries to save power generated by solar, wind or natural gas power) and turbine companies(to generate power).
In the end the most important thing to remember is the study for the category of stock your buying. Sure the indicators and Wall street million dollar Quant invest softwares are helpful but it cannot see the future possibilities as the human does. So, the basic concept is you cannot get money in this world if you are not working hard for it, in this case studying hard for actions/developments of industries and companies and thier future possibilities. Even being a trader and investor is a full time job if you do it the right way.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only. Read more