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