Skip to content

Stock Trading Strategies – How to Trade Well in 2024

Stocks and Shares: The Low-Down

Stocks and shares are some of the most common and well-known financial instruments on the market today. Shares in companies that are known as “publicly traded” are found on established national stock exchanges such as the FTSE (Financial Times Stock Exchange) 100 or FTSE 250. That’s because these companies have taken the specific decision to sell some or all of their shares to the public, often to raise money through what’s known as an initial public offering (IPO). Other stocks are privately traded, which means that they’re owned by their directors or other personnel and are often available to buy only if you’re a private investor, rather than merely a trader.

Stock Trading Strategies

Regardless of the sort of shares, you plan to trade; there are lots of reasons to devise a simple trading strategy that suits both the behavior of the broader market as well as your own goals. Besides thinking about which national stock market you might want to pursue or what triggers cause your preferred market to move, for example, you’ll also need to think about your attitude towards risk and reward and how much you’re willing to invest to get your stock trading career off the ground. No matter whether you need to formulate a stock strategy for beginners or you’re a professional looking to re-calibrate your trading strategies for the long term, it’s wise always to be thinking about maximizing your tactical chances.

[tradingcategory_box size='big']

The Practical Side of Trading

Stocks can be gained in various ways. Company owners, for example, have shares in their firms, but they’re not considered traders. Traders are those who buy shares from a stock market with the express intention of speculating on their value – in other words, aiming for their value to rise to a higher level than when it was bought. To begin trading, you’ll usually need to sign up with a broker who can facilitate the purchasing of the shares. Finding the best stock broker for your needs is something that often requires a bit of research beforehand, but it’s easy enough to do if you complete a quick stock broker comparison with your aims in mind. The broker you choose can have a significant impact on the sort of strategies you can use.

If you select a CFD stock broker, for example, you won’t own the stock itself – although this will be linked to the market on which your stock is usually traded, and the experience will be largely the same. A CFD stock, though, works on a leveraged basis, which means you can trade on the margins and boost the amount of profit you can earn (or, conversely, make the loss you can incur greater). Your decision about how you’d like to trade stocks on a practical level can have a profound impact on your strategic planning – so it’s wise to build this into your trading strategy.

Removing the Emotional Element

Compared to many fields, stock market trading is an odd hybrid discipline that often combines both art and science skills. It requires both the quantitative data skills of mathematics as well as the instinctive understanding of behavior and risk that only an analytical mind can provide, and it takes a certain type of person to remove the emotion from big decisions about whether or not to buy or sell. If a holding begins to decline in value one day, for example, a less experienced or a more nervous trader may be tempted to sell straight away to cut their losses.

  •    Both analytical and mathematical skills are often required for trading
  •    Emotional trading is a real risk with the stock market
  •    Traders may be tempted to sell following a bad performance
  •    Following a strategy can cut the risk of performing emotional trades

A tactical trader with stock trading strategies in place, however, would be more likely to recognize that the market may smooth itself out over time. This is all the more reason to ensure that you have a robust strategy in place. When you have a tested strategy in operation, you’ll be able to more easily dismiss the temptation to sell your holdings if there is a sudden decline in value. If you don’t have a strategy in place, though, you might find yourself buying and selling emotionally – and that’s often a recipe for trading disaster.

[two_post_boxes post_type=”strategy”]

What are Your Preferences?

When it comes to trading on the stock market, you first need to work out what your preferences are. Some traders enter the stock market with the express intention of investing in particular types of stock – and often, this is related to their broader financial situation. People who have amassed or come into a large sum of investment capital, for example, may choose to invest a small portion of it in a high-risk stock for most experimental purposes.

  •    The size of your capital investment may dictate your preferences
  •    When a trader has more capital invested elsewhere, the risk may be more advisable
  •    Diversification (moving investments across many different instruments) is advisable
  •    Returns are never guaranteed, so not all eggs should be placed in one basket

People who have a smaller amount of capital and are unable to diversify as much, meanwhile, may instead invest it in safer stocks to hopefully create a steady stream of returns. This isn’t a hard and fast rule, but rather a useful starting point for thinking about stock market performance. Given that returns on the stock market are never guaranteed (even for those labeled less risky), it’s always wise to invest only as much as you are willing to lose.

The Importance of Long-Term Thinking

One of the first things that many new starters in the world of stock exchange trading discover is that there is often a clear need to think long-term when placing trades. Stock markets are particularly known for performing best when seen over the long term (i.e. over periods of years as opposed to months). As a result, it’s often recommended to place trades in a way that allows the market to overcome any problems and earn you your investment back. But that’s not to say that short-term thinking should never be welcome in your stock trading strategies, and it may be that you can build it in successfully. It’s all about working out market performance and personal goals: if you analyze a particular market and note that it tends to bounce back after a few months rather than over the years, creating a five-year plan may well not be sensible. One way to build an effective strategy that expertly handles these taxing questions of time and duration is to backtest. Backtesting involves going back over previous market performance and working out how well a particular strategy would have performed if it had been in place then. This strategy is especially suited to the stock market not just because it can help you deal with the question of time, but also because the stock market is full of relevant historical information – unlike cryptocurrencies, which may not have any available data.

[tradingcategory_box size='big']

Ensure you Have Access to Independent Data

Related to the issue of backtesting is the need to make sure you have all the data you need in an accessible and easy place to make effective strategic decisions. This, in large part, will depend on your budget. There are plenty of free major information providers out there who can give you the information you need to make decisions, and the internet is full of stock market data for you to use. There are also some paid services that can give you even more information, such as newspapers like the Financial Times or dedicated information provision services like Bloomberg terminals.

More generally, it's wise to avoid investing in stocks purely by tips from an expert, friend or another person unless it fits into your pre-defined strategy. The problem with using tips given to you by others is that it can throw your strategy off-kilter: for example, if someone recommends making a short-term investment and all of your other investments are long-term, introducing apples to oranges in this way could leave you with portfolio performance that’s hard to measure. Independent data and information that can be used to inform your tactics, then, is vital.

The Power of Order Execution Tools

Order execution tools are handy components of almost every strategy designed for use on the stock markets. Stock market traders can specify, for example, what sort of order type they would like to use: a market order permits the broker to buy the stock there and then no matter what the market conditions are, while a limit order stipulates that a purchase can only take place once it begins to cost a certain price. It’s also common for a trader to incorporate the use of the “stop loss” tool into their strategy.

This allows you to stipulate a point at which your stock must be sold to minimize your losses as much as possible. If you choose to use any of these tools, though, you should only use them as part of a defined trading strategy – and not on their own. If you’re following a procedure that involves allowing your stocks to temporarily decline in value on the assumption that they will later rise in value again, for example, you shouldn’t feel compelled to put a stop loss on them just because it’s an available strategic tool. These tools should only ever be applied once your tactics have been worked out.

[broker_small type=”stock”]

Automated Stock Trading: Is it Worth it?

Thanks to the growing power of the internet in the financial and trading sectors, it’s now the case that stock trading can – like so many other services – be automated. Two of the leading British providers of “robo-trading”, as it’s known, is Moneyfarm and Nutmeg, and they offer a range of services designed to make portfolio creation as comfortable as possible. Although the software behind these platforms does the work for you, you can still retain control over what sort of strategy you want it to follow.

  •    Automated stock trading – or “robo-trading” – is becoming increasingly popular
  •    Nutmeg and Moneyfarm are primary UK providers of robo-trading services
  •    Should only be done if you consider it right for your strategy and personal investment goals
  •    Fees are levied on investments – and they may be high

You can stipulate the level of risk you’re comfortable with – and the sites have developed detailed methods for working this out. A strategy that relies on automated trading, though, should only be pursued if you believe that it’s the right move for you. It’s also wise to remember that these firms charge fees, although they can vary based on the provider, the size of your investment and other factors. Charges aren’t usually too high, but for some more substantial investments, it may well be worth considering whether or not the fees you’d pay are worth it compared to the cost to your time of building an investment portfolio yourself.

stock trading

Relying on Others: The Right Tactic?

In addition to the new world of automated stock trading, it’s now also possible to borrow tips from trading professionals through the use of another technological trading development known as “copy trading.” Copy trading relies on a simple premise: traders who have a lot of expertise or who are particularly successful at their craft can sign up to a website that connects them with newer or less successful traders who require assistance.

The more modern trader can then choose to emulate the trading decisions of the leading trader: if the principal trader makes a loss, so will the newer trader – but if the main trader profits, the more modern trader will too. It’s possible for newer traders to search for those who match their preferred trader profile, so it’s a customizable service. To some new traders, this seems like an exciting way to circumvent eternal questions of strategy by allowing someone else to do it for you. But it’s not a way around thinking about tactical questions, and it’s also important to establish your own strategic goals first. Do you want a risky portfolio to attract potential higher gains, or would you prefer to play it potentially safer? Whether you’re trading yourself or you’re working with a more experienced trader to achieve your goals, you should always be sure that your strategic priorities are embedded into your thinking before you take the plunge and commit to copy trading.


Why Stock Trading Needs to be Strategic

Stock trading strategies are pretty much an essential part of buying and selling stocks, and they’re often the only way to give yourself even a chance of stock market trading success. But no matter which stock trading strategy (or, indeed stock trading strategies!) you choose to use, you’ll always need to make sure that they suit your goals – and you’ll also need to check that your chosen strategy reflects the instrument being traded, After all, it’s unlikely that an approach designed for the innovative and unusual world of cryptocurrency would accurately reflect the well-established pressures of the stock market, for example, and traders need to take this into account. Meanwhile, traders who rely on short-term strategies need to ensure that they have other mechanisms in place to manage the drops in value that often occur on the stock market.

Those who prefer low-risk investments should be careful to make sure they have tools in place that help them understand what makes an investment risky and what makes it a little more secure. And those who choose to make copy trading software a key plank of their stock trading strategy should always ensure they get their personal preferences developed first rather than rely purely on the expertise of another trader. Ultimately, trading can be a rewarding experience, but it’s never a smooth ride – and traders should always think carefully about strategy before they decide to get started.