Before entering into the markets at any level it is crucial to have a working knowledge of the dynamics of the stock markets and the main influencing factors.
These will be briefly touched upon. The main influencing factors are likely to be economic, such as inflation, interest rates and GDP. A variety of other factors are likely to have an effect, relating to possible geo-political factors (i.e., wars, civil unrest), also political uncertainty generally has a profound effect on the markets.
From this we can see that there are a wide variety of variables that are going to affect the markets as a whole which will ultimately determine the supply and demand of direct equities.
There are a general set of principles that you should adhere too constantly in order to reap the rewards that the stock markets have to offer, below I will outline some of these universally accepted principles for experienced private as well as institutional investors.
Set a concrete nominal value you can realistically afford to invest. For example if you go out to the bookies to bet on the horses you would generally have a set amount to spend and once you reach that level cut your losses or cash in. What I am trying to convey is discipline and routine which is essential for consistent returns.
Do not treat the stock market like the lottery. It is a skill that needs to be mastered and perfected to trade effectively. Be in it for the long term and like anything in life essentially the more skills you build the more effective you will be.
Eliminate as much risk as possible by doing your homework on a stock you are going to invest in. Information is freely available more so than ever especially on the internet. You will be able to locate company accounts and assess the general health of a company through a variety of sources.
Diversity is truly the key in the markets. All the big guys know this in the markets usually hedging their large positions with an inverse position or more stable position. Do not put all of your eggs in one basket as they say equally spread capital over a number of positions.
If you loose money on one position its not the end of the world all of the massive guys the Karl Icons and Warren Buffets would have if not still loose money in the markets. Try and look at every event as a learning experience on which to add to your arsenal of skills.
Oliver Guillies is a Graduate working with a firm of Stockbroker's in the City of London. He has a passion for travel amongst other thing's. If you want to read more up to date articles and opinion's on Oliver Guillies blog Click Here