Stocks: The anatomy of a great trade

7 best stock trading strategies of 2019 - The Economic Times

A good trade generates a positive return for the trader, even in the face of short-term volatility. Understanding the anatomy of a stock trade can help you identify and execute successful trades more often.

Understand what drives stock prices

First, it’s essential to understand what drives stock prices. Many factors influence stock prices, including earnings reports, economic news, market sentiment, technical trends, and political events. For example, following an earnings report that indicates strong growth for a particular company, its stock price may rise as investors react positively to this positive news.

Be aware of basic trading strategies

Second, you must know basic trading strategies, such as buying low and selling high or shorting stocks with poor fundamentals (selling borrowed shares in anticipation of falling prices). Traders should also be aware of the fundamental orders available, such as limit and market orders.

Know where to look for trade ideas

Finally, knowing where to look for trade ideas is essential to identify advantageous trades. This knowledge could include researching financial news stories or scanning stock markets for potentially lucrative trends. It also involves following the insights of experienced traders or using technical analysis tools that can help you make trading decisions based on historical data and price patterns.

Top strategies used by successful stock traders

There is no right or wrong answer to this question, as successful traders’ strategies will vary depending on their trading styles and preferences. However, some of the top strategies that successful traders often use include:

Fundamental analysis

This analysis involves analysing a company’s financials to determine whether it is fundamentally strong and has a sound business model. Investors who use this strategy look for stocks undervalued by the market and may invest for the long term.

Technical analysis

This analysis involves analysing a stock’s historical data and price patterns to identify bullish or bearish trends. Traders who use this strategy often trade in the short term, looking to profit from momentary price fluctuations.

Momentum trading

This strategy involves buying stocks experiencing sharp price increases to capitalise on the momentum. Traders who use this strategy look for stocks with solid fundamentals and high beta (a measure of a stock’s volatility).

Value Investing

This strategy involves buying stocks trading at a discount relative to their intrinsic value. Investors who use this strategy often look for companies with solid fundamentals and long-term potential.

What are some of the financial risks associated with stock trading?

Several risks are associated with stock trading, including the possibility that prices may change rapidly in response to unforeseen events or market conditions. In addition, stocks can be highly volatile and susceptible to sharp price fluctuations, exposing traders to significant losses if they are not careful. 

Other risks include the potential for fraud or manipulation by insiders and the high costs associated with trading stocks. As such, it is essential for investors to carefully consider their trading goals, risk tolerance, and investment strategies when deciding whether to trade stocks.

The best stockbrokers in the UK

If you are interested in getting involved with stock trading, you need to open an account with a reputable broker such as Saxo Bank. When it comes to finding the best stockbroker for you, there are a few things you need to consider. The first is the cost of using the broker – some charge commissions on each trade, while others may charge an annual fee. It would be best to look at the range of products and services offered, and the quality of research and support provided.

The best stockbrokers in the UK offer a good mix of value for what you paid for, a wide range of products and services, and high-quality research and support. Make sure to do the proper research before committing to working with a stockbroker. 

The final word

If you want to make great stock trades consistently, it’s essential to understand the anatomy of a successful trade. You can increase your chances of finding profitable trades by understanding what drives prices and keeping up with current economic news, market trends, and trading strategies.