45 years ago, trader and investor Richard Dennis made a bet with his friend William Eckhardt. Can the average person on the street be taught how to trade profitably on the stock exchange if certain rules are followed?
The experiment lasted 5 years. During this time, Dennis’s students turned $23 million into $175. It was the legendary turtle strategy, showing how important a clear set of rules is in stock trading. Therefore, in the article we will consider trading strategies in the stock market.
The Importance of a Trading Strategy
The chosen investment strategy determines the risks that the investor is willing to take on and the investment time horizon.
If the calculation for investing large sums in order to preserve capital and cautiously increase within a little more than a bank deposit is a direct road to the strategy of long-term investment in the stock market.
Ready to take risks, want a quick increase in capital – the path of a trading speculator.
What distinguishes a speculator from an investor
Speculation refers to trading with repeated buying and selling of assets with holding positions from a few seconds to several weeks – an attempt to capitalize on price fluctuations over short periods of time. Trading speculations are possible both on the rise in value (long position, long) and on the fall (short position, short).
An investor buys an asset in the stock market in order to profit from growth and receive dividends. Terms of investment strategies – from a year to tens of years.
Types of trading strategies
Asset Allocation
Investment strategy with different classes of instruments. There is no single trading scheme that strictly stipulates – this 5%, that 7.5% and not a single gram more. The formation of an investment portfolio in this strategy is similar to the approach of an artist – a lot depends on inspiration and goals.
The key is risk diversification. The ideal situation is when the assets of the portfolio do not correlate with each other, the correlation is negative. At the same time, the movement of one does not automatically pull the price of the other. But in reality, this is impossible: the correlation is taken into account, if possible, minimized.
Dividend Strategy
Based on the payment of dividends by companies. We are interested in those who pay dividends regularly. The size and terms of payments are determined by the shareholders. This happens once a year, less often – six months or three months.
Technology for receiving dividends:
- Shareholder cut-off date. It is known in advance and follows the reporting period. Payments for 2018: cut-off of Gazprom shares – 07/19/2019, Rosneft – 02.07. Dates are at the discretion of the companies themselves. At the time of the cut-off to receive dividends, the shares must be in the account. It is not necessary to hold shares for the entire previous year, you can buy a few days before the cutoff and sell immediately after it.
- After the cut-off, no later than two months, shareholders gather and approve the amount of payments. If this earning strategy does not suit you, then there is another good way to make money quickly – online pokies NZ.
How to choose stocks with the best dividends
Issuers are required to disclose information about “material facts”. This includes the decisions of the board of directors.
55 days before the meeting, at which the cut-off date is determined, they decide on the payment or absence of dividends, preliminary amounts. This allows time for analysis and purchase in advance. In addition, two to three weeks pass from the meeting to decide the date to the cut-off itself. This is an additional period for reflection – whether it is worth participating in the stock market dividend race.
Value strategy
A strategy built on undervalued market assets. The trading investment horizon is a year or more. The criteria for assessing below the market is determined by the investor himself – based on experience, insider information or fundamental indicators. The last trading approach is based on fundamental analysis coefficients.
Some of them:
EPS is the ratio of net profit to the number of shares, that is, how much you can earn on one share. The key parameter for building a strategy.
P/B is the ratio of share price to inventories. Inventory – the balance of materiel after the repayment of debts. If the parameter is less than 1, the enterprise is undervalued, from 1 to 2, it is a fair assessment, >2, it is overestimated.
EV/EBITDA – Gives a quick estimate of overpricing or vice versa compared to competitors. It shows how long it will take for the company’s profit not spent on depreciation and payment of interest and taxes to pay back the cost of its acquisition.
Drier
Price movement in an ascending / descending or horizontal channel with marked boundaries.
The trading strategy is based on the fact that the price moves in the channel, when approaching the border, it opens an opposite position. The price went down to support – open long, to resistance – close or turn over to short.
The choice of a working strategy when trading speculation or investing is a matter of which way to go to the personal goal of enrichment. Pick the wrong one, lose everything, pick up a long road for yourself in the dunes of stock market investments.