Just as there are two dominant styles of investing, there are also two dominant styles for trading stocks. Growth investors buy and hold young companies with big potential. Value investors buy what they perceive to be undervalued stocks, and hold them until their value is realized. Growth and value are styles for stock trading, too, but they differ from their investment counterparts. The Difference Between Investing in Stocks and Trading Stocks Investors buy and hold with the hope of long-term appreciation. People engaged in stock trading buy for the hope of a quick flip. Some hope to hold for three weeks or even a couple months. Others want to hold their stocks for only a few days or even less than one day - some people engaged in trading stocks will buy and sell the same stock several times the same day! Trading stocks that rapidly is a strategy of neither growth nor value, which are both longer-term strategies, even for traders. When talking about stock trading, as opposed to investing, long-term doesn't mean decades or years, but just a few weeks or months. Trading Stocks Strategy #1 - Value Plays Trading stocks based on valuation is the more conservative of the two strategies we'll explore. This strategy for stock trading relies on finding stocks with prices that are beaten down, and hoping for a turnaround. Some examples of stocks like this in the current market are eBay (EBAY), Intel (INTC), Microsoft (MSFT), and Yahoo! (YHOO). People who like stock trading on value love it when we enter a bear market. They view it as a buying opportunity! If you begin trading stocks this way, you need to buy on the "dips" - each time a stock goes down in price, and sell on the "pops" - each time it bounces back up. Also, you probably want to stop stock trading altogether when the market is on a big bull run. After all, from your perspective, there won't be any bargains to be found. Trading Stocks Strategy #2 - Growth is Good Growth traders are pretty much the exact opposite of value traders. While value traders love it when stocks are "on sale" during a bear market and get out of the market altogether when things are bullish, growth traders love it each time stocks hit new highs and stop stock trading when things turn bearish. Growth traders tend to rely very heavily on charts, and what is called "technical analysis." By contrast, value traders prefer "fundamental analysis" - examining a company's income statement, balance sheet, and cash flow in order to determine its real value. Growth traders pose the question that if you keep buying on "dips," what if your stock turns out to be Enron? They say that buying each time a stock hits a new high makes more sense, because a stock can't really fly unless it continuously hits new highs. Growth traders say that you should always, no matter what, sell any stock if it falls 7 or 8 percent below your purchase price, and this way, you're guaranteed not to lose too much. Meanwhile, if you keep buying on the highs, some of your stocks are going to go through the roof, more than making up for any of the 7 or 8 percent losses you might sustain. The Truth - Trading Stocks Requires Discipline Each of these strategies for stock trading has its merits, and both have worked, historically. Where most traders go wrong is failing to stick to their game-plan. If you're going to be involved in trading stocks, you must develop a strategy, and by all means, stick to it!
Frequently Asked Questions
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QUESTION:
How can I learn how to Buy and Trade Stocks? Just for personal gain.?
I want to learn how to buy and trade stocks. I also want to learn about 401k and IRA's. I would like to invest some money and teach my children how to make your money work for you. Are there any websites I can go to that may have tutorials.-
ANSWER:
I would buy a few books to start with:
The intelligent investor (graham and Dodd) Please read more than once
One up on Wall Street (Peter Lynch) Please read more than once
Rich dad, poor dad (Robert Kiyosaki)
Contrarian investment strategies (David Dreman)These books are a good foundation for a non-professional investor.
I would stay away from websites and so forth in the first year because some are promotional sites for certain investment styles that may not fit in your overall situation.
Eboudames
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QUESTION:
What is the best way to rollover my 401K?
I left my old job, and want to rollover my 401K to another institute so that I can have more investment options, such as trading stocks, or ETFs, instead of mutual funds only in my 401K. and, exchanging in and out any time I want, instead of order being excuted after market closed. What is the best way to this and what financial institute would be the best place (etrade, DT Ameritrade, T.R.Price, etc., etc) to rollover to?-
ANSWER:
Do a web search for discount broker and look for comparisons. While stocks and ETF's can be traded instantly any time the markets are open (or when limit or stop orders are reached), any trades for any mutual funds have to be arranged before the broker's deadline and you end up with whatever it is at market close. Mutual funds may have minimum holding periods from 30 days to 6 months to avoid penalty.Whatever you decide, do a direct trustee to trustee transfer to an IRA to avoid withholding. If it is paid out to you (check in your name or cash) there is mandatory 20% withholding that you have to add back in within 60 days with the rollover, or the withholding would be taxed plus 10% penalty if under age 59.5.
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QUESTION:
What are my options for rolling over a company 401k?
I am a 23 year old man who has accumulated about k in a company 401k. I am planning on leaving the company very soon and have the intention of rolling over my 401k into a Roth IRA account with Scottrade-- they seem to have the right tools for me versus Etrade, Charles Schwab, and Ameritrade. I have practiced trading stocks on Updown.com in the past and did pretty well, I'm still a beginner however. I'm not interested in rapid growth because it tends to be risky. I'm also not gonna be happy earning a few cents a month. With that being said, I have a few questions.1) What penalties and fees should I expect?
2) Do I have to use the entire amount to start the new account? In other words Can I use 1/3 to handle a few debts and the rest for the new account?
3) Is this even a good idea? If not, what can I do with the money? I don't want it floating around? Also I want it to be a little easier to access than a 401k.All input appreciated, professional advise preferred; and please be kind with your answers as I am just a novice.
Thank you
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QUESTION:
Do companies always match 401k with company stocks or do they contribute to their general 401k plan they have?
If a company does not trade stock but they have a K plan plus, are they contributing into their investments they have established. Is Profit sharing the same as 401k.-
ANSWER:
profit sharing is a general term to describe the process whereby a company shares part of their profits with employees: it generally takes three forms-some companies use one or more types-1. cash bonus
2. company stock
3. deferred paln (401k is a specific type of deferred plan)options 1 and 2 are taxed immediately upon receipt, so employees get less from them. deferred plans have strict rules on withdrawing the funds, and penalties usually, but are tax-deferred-you dont pay income tax on the money until you take it out. the idea is that you keep these until retirement, when you have lower income and a lower tax bracket, so you are taxed at a much lower rate. plus, over a lifetime of employment these can earn dividends because they are invested.
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QUESTION:
What is the best way to slowly invest over time?
I'm bored and thinking about my current investments and the future.
I'm 25 and single. I've been with my current employer for one year next month. My base wage is about 33,500 a year with pleny of overtime and holiday pay. I'm currently on pace for ,000 and work very little overtime, I make what the average household in my area makes. I plan on buying a home about this time next year but aside from that, I'm looking for places to tie my money up so I don't waste too much of it.Next month I'm eligible for the 401k at work. My employer matches 50% up to 6%. I plan on giving the 6% to take an extra 3% upfront. I've also been sending a couple hundred a month to prosper.com. I love that site! I tried trading stocks but I don't have the time to babysit and keep up to speed. I have a buddy for that anyway. I'm looking for other ideas? Self-directed IRA? What else? Thanks.
PS I plan on staying in the 15% tax bracket this year and next.
Thanks to those that have answered but I'm not looking for stocks or mutual funds. I'm looking for new ideas to get excited about. Like I stated earlier, I really like the Prosper model, it's new, simple enough, and gives a very nice return. Anything else like that?-
ANSWER:
Since you're probably talking about investing fairly small amounts per month, a mutual fund is probably the easiest way to invest for the long term because they'll often accept small amounts. It's hard to buy a good stock with a couple hundred dollars. Think about an IRA that you can invest in a mutual fund. The easiest kind of mutual fund to use is the lifecycle or target date fund. These are funds where the fund staff put your money in a diversified portfolio. You don't have to do any money management yourself. The fund's investments are selected for long term growth. You might want to look at the Vanguard and Fidelity websites to see what they have to offer; they're likely to have pretty low costs, especially Vanguard. For more information, see the webpages below.
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Source: http://tradinggold.net/?p=35070
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