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INVESTING
If anyone is
going for any fresh investment the first thing that he needs to know is the
relationship between Risk and Return
on investment. Any sort of investment has a risk in it and an expected return
associated with the risk. Risk and Return are normally directly related.
Now on making your investment decision your role is to minimize the risk and
maximize the return. (how to do that
will be dicussed later).
DIVERSIFICATION of investment portfolio
across different categories of investments such as Debt , Derivatives, Equity, Forex , Commodity, Venture Capital, etc is a prudent idea.
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Now let us consider investing in a stock
market or any kind of investment which is freely
traded in an exchange so that its performance is easily monitored and have full liquidity.
MINIMISING RISK AND MAXIMISING RETURN.
As said earlier this is the main task of an investor. There are several ways it
is done like studying economic condition, country analysis, managements
credibility, industry analysis, fundamental analysis of the investing company ,
liquidity condition of the market, etc.
etc. and so on. But the central
point of all these is analyzing relevant information. There are so many
incidents taking place all over but we are bothered only for those which have
an effect on our investment. Any incidents which is relevant is a substance of
our analysis and further to the
extent it effects our investments. Since investments are freely traded in
market these incidents should have effect on the price of the stocks. So is it
not prudent to analyse the price of the investment itself? These is where the
technical analysis comes into play and I personally recommends it to be much
easier and effective than any other methods of investing.
However there are some basic assumptions
that one should bear in mind when using technical analysis for investing. That
there is a complete flow of information in the market and is reflected in the
price. Hence technical analysis can only
be applied to large cap stocks which have
high volume. It cannot be applied to penny stock with low trading volume and whose price can be easily manipulated. It
cannot also be applied to newly listed stocks.
For example consider the following
statement- “It is definitely possible for
an expensive stock to be undervalued, and for a stock that is worth pennies to
be severely overvalued.” This is a wrong concept at least for large cap stock
where trading volume is high and information flow is substantial .Contrarily
the reality is just the opposite. MARKET IS ALWAYS RIGHT . If you are planning to make some money investing in stock
market , then this is the first thing
that you need to know. Under no condition no one can be better knowledgeable
than the market itself. The most essential thing is that you have to trade with
the market, not against it. You cannot imagine to be against the market and
make huge profit, that is simply your greed or imagination, yours worst enemy
in the market. FEAR, EMOTION & GREED ARE INVESTORS WORST ENEMY. .
Another wrong concept that most of the investing community
have is that fundamental analysis is for long term investing and technical
analysis is for short term investing. My personal opinion is that you can apply
technical analysis for long term
investments also.
The only difference will be that if
you are using technical analysis for long term investments then the charts has
to be analysed for a longer duration. Besides it is more likely that technical
analysis will give you early sign of exit for your investments than your
fundamental analysis because it is safe to assume that if there is any so
called fundamental news on your investment it is not that always you will be
the first person in the market to know it. Now there are prudent investors in
the market who have the news and on that whatever they act will certainly going
to effect the price of your investment. So technical analysis is most likely to
give you early signals. Converse is also true i.e. entry signal can also be
effectively generated by technical analysis.
But if you are really thinking to
make some money by investing in financial markets, then FOREX MARKET has the
highest of all potentials. You can make a fortune with little investment by
strategically and prudently investing in FOREX MARKET. One can really make a
killing in FOREX MARKET by leveraging
today’s technology appropriately.
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