When you go into investing with stocks, it is essential that you have a strategy for your stock trading. It's important to be clear about what your goals are when investing in stocks - these can only be achieved with a strong strategy.
There are many different investment strategies, and therefore it can be difficult to navigate which type of investment strategy you should go with.
Whatever strategy you want to go with, it's important that you stick to it. Therefore, it is recommended that you write down the most important things about your strategy in order to stick to it at all times. This way, it is easier to stay away from spontaneous or emotional investments that can harm your investments in the long run. That's why it's a good idea to write down the following about your investment strategy:
• When to buy and why you want to buy the specific stock
• If your stock is to be sold for profit, when should the stock be sold?
• If your stock is falling in value against expectations, at what price should it be sold?
However, you also have the option to combine several strategies as long as you can note the above accurately anyway. This means you can spread your investments across several different markets, as long as they fit your investment strategy.
Below you can read about the investment strategies you can choose from when you start trading stocks.
If you choose the Value Trading investment strategy, your focus is on buying shares that are currently cheaper than the real value of the company. That way, you'll make a profit on your shares when the market corrects - which, with this strategy, you expect it to do. In other words, this investment strategy focuses on investing in shares that are immediately underpriced, i.e. undervalued in relation to their real value.
One of the key elements of this strategy is that a stock is not simply seen as an investment in a security. Rather, an investment in a share is seen as an investment in a part of a company. Therefore, it is crucial for this specific strategy that you spend time researching the following things about the company:
• What is the current share price of the company
• How have they performed in the stock market in the past and in general?
• Who is in charge of managing the company?
This type is a long-term investment strategy - this is the type of strategy used by Warren Buffet, one of the most successful stock investors in the financial world, among others.
In other words; if you choose this investment strategy and come across shares that you are convinced are priced too low for what the company is worth - then you should go for it.
Momentum Trading - also called Instant Trading - looks at the performance of the stock. This means that this type of investment strategy requires you to set aside time to do both risk analysis and research in order to be successful with this strategy.
This strategy relies on understanding statistical probabilities. In other words, you look at which markets or specific stocks have performed over the last six months. It is then assumed that, statistically, these will also perform best over the next six months. Therefore, it is also assumed that the stocks that have performed worst over the last six months will be the ones that perform worst over the next six months.
The Instant Trading investment strategy requires knowledge of equities - which is why it is the one most professional investors use. If you're new to investing in shares, this particular investment strategy can be difficult to operate from the outset.
Instant Trading requires a lot of preparation and also that you almost constantly monitor changes in the market. Therefore, this strategy is mainly for more experienced investors.
Asset allocation is also known as Asset Allocation. This is the most classic investment strategy and the one most people encounter with their pension company, due to a fixed risk profile.
Once such a risk profile is established, you will be proposed an allocation between equities and bonds, based on that particular profile. Here, each asset class accounts for a percentage of your personal portfolio, depending on the risk profile. When investing in equities, this is very useful.
A fixed allocation like the one you get with asset allocation makes it easier for you to see when it is most advantageous to buy and sell your shares. If you choose to trade shares as an asset allocator, you have several different options to choose from. For example, you can allocate money to invest in property or renewable energy, which can then be spent specifically on these stocks.
The allocation of your investments is determined by what you dare and should do, based on your risk profile. This is very individual, as it depends on your risk appetite and the time horizon of your plans for investing in shares. So you get some options that you don't with other strategies, just be aware that this strategy is very individually based and depends on your personal preferences and options.
This strategy is also known as Stock Picking. When you go into investing in stocks with this strategy, you do not wait how the market adjusts. Rather, you look at how a specific stock from a specific company adjusts. This strategy is therefore very short-term - even more short-term than Value Trading (which you can read more about above) - which is why it is extremely important that you monitor your investments even more closely.
This strategy is built around timing. If you choose to go with this strategy, it is important that you follow societal developments closely. Moreover, it is a necessity to have more than ordinary knowledge of the economic cycle. This is because the economic cycle is extremely important when it comes to which stocks you choose - as well as when you do so. Stock picking is therefore a strategy that requires more time than most strategies, as well as the right assumptions and knowledge, in order to pick the right stocks.
This strategy is beginner-friendly and the risk is low. It is a simple investment strategy and it is long-term, so it can be put together with other investment strategies.
If you choose to go with this strategy, you will be able to buy a stock and hold it for many years without selling it. It's not just about 1 year or 5 years - this is a strategy where you hold onto your shares for 10, 20 or even 50 years.
This strategy is based on the fact that there is time in the market, i.e. the expectation that this is better than having to time the market.
That's why this strategy is also one of the most rational strategies, as it relies on data, rather than impulse.
In practical terms, this investment strategy is based on the idea that it is better to stay in the market for a long time and make a lot of money over a long period of time, than it is to invest at a very specific time and make a lot of money there. This means letting the market do the work, rather than timing investments according to the market.
Historically, the stock market has risen by 7-10% a year on average, despite fluctuations from month to month and year to year. Therefore, the risk with this investment strategy is also low, as according to historical data the market behaves that way.
The Buy and Hold investment strategy is a simple strategy that is easy to get started with. You won't have to invest nearly as much time in this strategy, while experiencing steady returns over time. However, you should be aware that this is not a strategy you make quick money on.
As you can read above, there are many different investment strategies to engage in - including more than the ones we've listed here.
It is important that you are aware of the following when investing:
• The market is always right! The price quoted is based on how the market views the value of a stock. It's about the underlying company, about supply and demand - and about expectations for the future.
• Talking about stocks being "too cheap" or "too expensive" is like saying the market is wrong. You may subjectively find the price too high or too low, but the price set reflects the market. If you have information about a specific stock that the market does not have, it is illegal to trade; this is called inside information. If, on the other hand, you do not have information, but only assumptions about the price, the market is right.
Short-term investments, such as day trading, can be risky as you risk losing a lot with this method. That's why we don't practice it here. At StoxIQ, we think long-term.
It is important to be aware of what is going on in the market and to have a good overview of your investments. Almost no matter what time period we look at, it will be long-term investors who stay invested who achieve the best returns.
With the StoxIQ app, you can easily keep an overview, as well as see what opportunities are available to you. We work with a continuous process.In other words; let the StoxIQ app help you build a sound, long-term strategy. The returns on your stocks come when you act rationally, instead of acting on your emotions. StoxIQ gives you this opportunity.
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