It’s a brand-new year and a good time to set some goals and targets. One of those may be to earn more money. One method that people are researching which could potentially lead to extra income is trading on the stock exchange.
However, stepping into the world of trading blindfolded can be a recipe for disaster and may cause you to lose your money.
So, in this guide, we’ll take a look at five important trading tips that could help you achieve success.
1. Study the Johannesburg Stock Exchange
The Johannesburg Stock Exchange (JSE) is one of the main hubs of trading in South Africa and the wider region. One common method adopted by traders is to invest in JSE top 40, which are the top 40 companies in the country. So, rather than investing in just one company, you invest in all of them.
However, before doing so it’s worth carrying out some research into the companies listed on the exchange. This can be done by reviewing their annual reports and financial statements, as well as following news and analysis on the companies and the exchange itself.
Additionally, you can study the exchange's market indices, such as the JSE All Share Index, to get a sense of overall market performance.
Other resources for studying the JSE include market data providers such as Bloomberg and S&P Global Market Intelligence, as well as financial news outlets that cover the exchange and its listed companies.
Joining an investment club or taking a course on stock market analysis can also provide valuable insights.
2. Diversify your portfolio
One of the best ways to achieve success with trading is to build a diverse portfolio. This is a piece of advice passed down by professional traders and the main reason is that it balances out your risk.
For example, if you invest all your money in one company, but that firm suddenly gets hit by a damaging news scandal, the share price could collapse, and you could lose a lot of money.
However, if you instead invested small amounts in a range of different businesses in addition to the company hit by a scandal, you’re less likely to lose a lot of money and your trading business will be largely unaffected. That’s because you’ve spread your risk.
So, if you identify several companies to potentially invest in when doing your research and they operate in different industries, it might be worth trading in all their stocks as opposed to just one or two.
3. Choose the right market
One tip which can lead to better trading success is to focus on the right markets. For example, some may be quite volatile, with major peaks and troughs. Others may be more stable.
Here are some things to keep in mind when considering markets:
- •Market size and liquidity - Larger markets, such as the New York Stock Exchange (NYSE) and the NASDAQ, tend to have higher liquidity, which means that it's easier to buy and sell stocks without significantly affecting the stock's price.
- •Market volatility - Some markets, such as the NYSE, tend to be less volatile than others, such as the penny stock market. If you're risk-averse, you may want to consider a less volatile market.
- •Sectors and industries - Some markets are more heavily concentrated in certain sectors or industries. For example, the technology-heavy NASDAQ tends to have more technology companies, while the NYSE tends to have a wider range of sectors.
4. Be realistic
When it comes to trading, it’s important to be realistic. While many people are drawn in by the claims of big returns on investment, the reality is that in most cases, returns may be small.
It’s therefore wise to set realistic targets and goals and build gradually toward achieving them. Otherwise, you may lose money and end up disappointed.
5. Never stop learning
An important tip for successful trading is to have an interest in continuous learning. If you’re new to the industry, you can’t expect to know everything. It takes time to build knowledge and understanding, and some of those insights only come through experience.
To build your expertise, it may be worth reading more guides like this one, checking out podcasts and YouTube videos and following popular traders.
Once you’re armed with knowledge, there’s little to stop you. It’ll help you better identify risks and opportunities and can help you take more decisive action when trades present themselves.
