Tips on How To Make Money in the Stock Market

You’re likely familiar with adages about the stock market and investing, from buying low and selling high to the importance of a diversified portfolio. But do you know how they apply?

Understanding the basics of the stock market and investing not only helps you learn how to make money in the stock market but it also keeps you from losing money.

If you want to avoid the mistakes that most new investors make, take the time to learn and do more research. Invest in yourself, and then put that knowledge to the test. Here are some tips on how to make money in the stock market.

Basics About Stock Investing

So how does the stock market work? Essentially, companies need to raise money so they can grow beyond what they currently make through their business operations.

They accomplish this by issuing shares that investors can buy and trade on stock exchanges, such as The New York Stock Exchange, NASDAQ, and more.

The stocks that are bought and traded do not have a set price. Instead, investors and traders buy and sell shares based on how much they believe them to be worth, and the direction they believe the price will go.

So when you buy and hold stock, a common strategy to make money in the long run, you hold a share or shares of a publicly traded company for an extended period of time, rather than buying them to flip them straight away, which is what day-traders do.

How much the stock moves (up or down) after you buy it will determine how much you will gain or lose. Outside factors such as environmental or health disasters, bankruptcy, or hard economic times can also contribute to how much you’ll win or lose in the stock market.

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Rules for Making Money in Stocks

Seasoned investors can probably go on all day talking about the rules of the stock market. Truthfully, there are no real rules (except for laws and regulations). Instead, you should think of them as principles or guidelines for best practices.

Stay Invested in the Stock Market
Hopefully, you didn’t start reading this with the belief that you’ll be able to enter the market and cash out quickly. Hardly anyone can time the market perfectly.

That’s why you’ll hear and read so many long-time investors talk about staying in the market. Sounds easy enough, right? Well, consider the highs and lows that can happen at just about any time.

For example, back in 2008, when the housing market crashed the economy, many investors panicked and sold their assets immediately. This only made more and more people sell, resulting in massive losses.

However, had those people stayed invested, they would likely see gains after some time. That’s because, after every market crash, there’s a rise that follows.

Of course, it’s easy to give in to the herd mentality to react immediately to market news. But some of the wealthiest investors stay invested through thick and thin.

Stop Timing the Market
Imagine you’re holding a stock that’s been on a steady rise. As it climbs higher and higher, the thought of selling rings in the back of your mind. What if you wait too long to sell and the price falls?

So you sell. And instead of the price falling, it just keeps rising. You realize that your gains could have been more had you stayed patient.

This is a scenario that many first-time investors experience—but it doesn’t have to be you! Investing takes discipline, a clear mind, and focused goals.

Acting on impulse or emotion or trying to time the market can be a disaster. But just as hard as it is not to sell when prices are swelling, you have ignored that impulse to sell when the price deflates.

Just because a stock is falling doesn’t mean it’s fallen forever. As you play the market, you’ll start to notice how quickly things change.

Methods To Make Money in Stock Market

With those two rules in mind, it’s time to discuss how to make money in the stock market. Let’s get into the methods and strategies that investors have used to come out on top of the market.

Buy Low and Sell High
As described, the buy low and sell high method involves you purchasing stock at low prices and selling them when they reach a higher price. Despite how straightforward this method is, it’s impossible to predict whether a stock will go higher in future, so research is really key. It’s a rule that’s also ignored by people who falsely believe that they time the market.

Instead, you should stay focused on your end goal. If you do your due diligence and conclude that a certain stock will likely go up over time, it’s better to buy now and sell it later on at a profit.

Short Sell High and Buy Back at Low Price
Another method for making money in the stock market is short-selling. The idea is to sell a stock at a high price and buy it back at a lower price later on. You must borrow the stocks before short selling as it’s a regulatory requirement.

However, if you are day trading, then you’re not required to borrow the stocks first since you will have bought them back before the market day ends.

It’s worth noting that regulations differ from country to country. Always know the rules of the market you plan to invest in

Earn Dividend Income From the Stocks
If you are unfamiliar with dividends, stocks that pay dividends are regular payments made by companies to shareholders. The payment is divided amongst shareholders and usually occurs once or twice a year.

The payment can come in the form of cash or additional stocks. Depending on the company and the kind of year they’re having, it might be better to choose the stocks. However, if you’re here to make money, then you can’t go wrong with cash.

Sell Options on Stocks
Options are contracts where the seller of the contract agrees to sell or buy the underlying asset at an agreed-upon price. Essentially, buying an option means you don’t own the stock, but you can sell the contract for it.

As the option owner, you are under no obligation to sell it. If the contract expires before you sell it, you keep the money. However, you can sell the options on stock and then collect premiums on the buyer.

How To Pick Individual Stocks?

Buying individual stocks, or rather picking ones that you’ll profit from, is extremely difficult. Sure there are some obvious go-to stock options from reliable, well-established companies.

But investing in the stocks is expensive, and the gains are typically marginal compared to small cap stocks. So how do you choose individual stocks?

Research, research, and more research. Read reports, if they are available, on whatever company you are purchasing stock from. Do not pick stocks based on emotional ties or celebrity appeal.

The more you know about a company, the easier the decision will be when buying individual stocks.

Build an Investment Portfolio

One of the safest ways to make money in the stock market is by building a diversified portfolio. What does that mean exactly? This refers to buying stocks from different companies in different industries.

As the adage goes, don’t put all your eggs in one basket -, the same applies to the stock market. If you throw all your money behind a single stock, you leave yourself vulnerable to fluctuations in the market.

However, by spreading out your investments, you position yourself to be at less risk. Not only are you safeguarding against market fluctuations, but you stand a better chance to catch the market as it rises. And if you need cash, you can pull a little out of several stocks rather than having to liquidate your entire portfolio.

Investment Ideas for Beginners

If you’re new to investing—pay attention. This section is about investing in stocks for beginners. Despite what you may see on TV or hear on a podcast, the best idea for beginners is to learn what kind of person they are and how this affects their investment preferences. Are they a buy-and-hold investor, or someone who enjoys the thrill of day-trading? Here are some investment ideas for you to start with.

Choose a Strategy That Suits Your Objectives & Risk Tolerance
Before you make your first investment, think about what goals you want to achieve. Yes, you want to make money, but so does everyone else. The question is, how will you do it?

You need to determine if you’re going to be a hands-on or hands-off investor. Most people refer to this as being an active or passive investor.

Active investors will be heavily involved in making moves on the market and paying attention to daily news. Passive investors will opt to drop their money in a stock index, where they can pay someone to manage their money.

On top of that, you need to assess your risk tolerance. It’s not just how willing you are to take on a risky investment, but rather can you survive it.

Understanding this aspect of investing is just as important as knowing the basics. Having a firm grasp on both should lead you to some smart decisions.

Join The Dear Retail Community

Learning how to make money in the stock market can be difficult, but joining a community of like-minded investors can change that. Dear Retail Investors have created a community with the goal of providing members with instant access to the latest stock market news. Discover all the ways small cap investments can make you money. Start by joining the Dear Retail community.

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