How to learn how to trade stocks on your computer and have a minimum of $0 commission fees.
Learning How To Trade Stocks Online For Free
During last weekend’s market sell-off, thousands of investors all over the world were confused about what stocks were at their favorite buying points. Everyone had so many question marks about the market (and it was in a downtrend, so the answer could be anything) that many were wondering what the heck to do.
For many individuals, the choice was pretty simple: stay neutral or go short. Shorting a stock is the quick and easy way to make money in a very dangerous market. In a sudden down-move, a short sale of a stock will often capture the maximum profit. However, the old “hunch and hope” model of investing is very dangerous. It is based on the concept that, when times are bad, the market will eventually find a bottom and work its way back up and everything will be OK again.
This is risky and usually leads to more mistakes and more disastrous outcomes, especially when it comes to small, inexperienced traders with thin capital. I have seen many novice investors trade aggressively during the dot-com bubble, trying to make a quick killing. I do not want to see anyone fall into this trap again.
In a down market, most small investors would say that they should go long to invest in stocks with long-term growth potential. However, that is often an investor’s biggest mistake. It is based on the belief that a stock in a certain sector will eventually rise.
Today, it is difficult to make money from long-term growth. There are so many growth stocks trading below earnings that the odds of making money are low. No matter how you slice it, the odds are not favorable in long-term growth stocks. You could, however, invest in value stocks, which are stocks that have long-term earnings growth potential.
Value stocks are cheap today for a very good reason: They have weak or nonexistent earnings. There are more value stocks to choose from than you think. Value stocks have been extremely volatile, but when the fundamentals improve, their shares usually rise and outperform other stocks.
Just like most other stocks, value stocks have highs and lows. During the biggest rallies for value stocks in history, the price/earnings ratio hit 50 for some stocks. This is not an unreasonable valuation. A stock is not “cheap” if it is trading at a P/E above 25. In fact, some value stocks traded for more than 100 P/E in the past.
The fact that value stocks have low valuation today does not mean they will never go back to their previous highs. Just like any other investment, value stocks can rise with the market. On the other hand, when the market is going down, value stocks usually sink even further. This is not because the value stocks are inherently bad investments or companies.
Many people only want to invest in value stocks because the valuations are relatively cheap, but this is not the whole story. Value stocks are great investments when they are reaching their bottom. The stocks that can bounce from a valuation that is at their bottom, when all else is failing, are great investments. The problem is that it is very difficult to find them.
The mistake that many investors make during down markets is to invest in value stocks and wait for them to come back to their previous high. However, when the market is going down, it is much more common to find cheap stocks trading at lower valuations than just about any other time in history. Value stocks may rise when the market rebounds. The problem is that after a bounce, the value stocks may fall even more. This is exactly what has happened so far, so you are better off going with a higher-risk but higher-return option.