What Type of Stock Trading is Most Suitable for Someone Who Is Working From 8am – 5pm?

You may ask, ‘What stock should I buy?’
If I say Public Bank is a good buy, would you buy now? Or, would you buy later?
If you buy now, your returns would be different from someone who would invest in Public Bank at a future date. The outcome depends greatly on when you buy and when you sell a stock.

Hence, before making an investment, I believe it is wise to have a trading plan which is customised to your investment needs.
For a start, there are 3 things you may consider first before crafting your trading plan.

#1: Gains

How would you like to make a profit from the stock market?
A day trader makes a profit from the difference in share price within a day. Meanwhile, a long-term investor intends to derive dividend yields and long-term capital growth from his investments. Long-term investors may hold onto a stock for many years and decades. They are less concerned about the ups and downs in stock prices.

Hence, your investment returns would be calculated differently.

The ROI of a Trader
A trader focuses on the proportion of winning trades against his losing ones. For every 10 trades, how many of those are winning trades?

Then, he will work on improving his ‘Probability’ of making winning trades. As the word suggests, a trader knows that he will make some losing trades along the way. The focus is on making sure that he makes a ‘Net Gain’ from his trading activities and does not suffer from huge financial losses from one bad trade.

The ROI of an Investor
Meanwhile, an investor focuses on long-term share ownership of a company. Instead of trading gains per month, an investor measures his success by calculating dividend yields and capital gains on a quarterly or on a yearly basis.

The focus is on assessing a company’s ability to grow profits and generate cash flow. An investor would compile and monitor the financial results of these companies. He will buy them if their share prices are relatively cheap and will sell them if they are overpriced.

#2: Skill

Basically, there are 2 methods of assessing a share’s potential as an investment. They include:

Fundamental Analysis
First, fundamental analysis involves separating profitable companies from unprofitable ones. If you have a background in accounting and finance, then, you may possess the skill sets of a fundamental investor. To name a few, words which are important to a fundamental investor include Earnings per Share (EPS), Return on Equity (ROE), Debt-to-Equity Ratio (Gearing Ratio) and Dividend Pay-Out Ratio (DPR). These words help investors to determine how efficient the company is in generating cash from its customers.

Technical Analysis
Second, technical analysis involves identifying price trends. If you are new to stock trading, it can be an overwhelmingly mind-boggling subject. You need to devote some time and effort to acquire trading skills. Traders use technical tools to determine whether the company is receiving cash flow from its investors. There are over 200+ technical tools in the market. Nobody knows them all. Most traders use a combination of few tools to execute their trading activities.

#3: Time

This refers to your current lifestyle. For instance, you may have a full-time job; working from 8am to 5pm. Day trading, in this case, is out of the question. This is because day traders spend many hours a day monitoring charts. It is like having a full-time job itself. Instead, mid-to-long investing is more manageable as it can be done on a part-time basis or when you have some spare time.

Design Your Trading Plan
Ultimately, it is about knowing our position and goals first before making an investment. With clarity, we would be less inclined to chase the next flavour-of-the-month. We will understand that a ‘Buy’ recommendation from a stock analyst may not be a ‘Buy’ for us. This is because we are different individuals possessing different investment styles and approaches.

I have written a 16-page e-book describing the ‘5 Different Methods on Making a Profit from the Stock Market’. This will allow you to understand the stock market world a little better.

This article is guest posted by Ian Tai, Creator of Bursaking.com.my. To request a free copy of the ebook,  please contact Ian here, and paste this message “I would like to have a free copy of ‘5 Different Methods on Making a Profit from the Stock Market’.