Learn to Invest – Intermediate Level
You can start devising your own investing plan at an intermediate investing experience level. At this stage, you can be comfortable with the basic functions of trading and dealing with online brokers.
From here on, you should look to acquire more knowledge about stocks and their performance metrics. Analysing stocks by yourself will give you access to a wider range of trading options.
Let us walk you through some key steps as an investor at the intermediate level.
Learn the Stock Market Language
Like any other field of life, you’ll need to learn about stock markets as well. Familiarise yourself with the basic stock market language and build on the foundation.
Probably, you have gained hands-on experience with a free trading account at a beginner’s level. Now, you can learn a bit more, for example, the 2% rule of trading.
Similarly, you should acquire sufficient knowledge about trading platforms, order types, trading strategies, and hedging methods at this stage.
While learning about stock markets, you must also observe how market news affects stock markets.
Study the immediate and long-term impacts of interest rate changes, political news, research and development, and technological advancement (setback) news.
Learn to Analyse
There are thousands of tools to study and analyse stock markets. You cannot master all of them, no one can. At least, you should learn to analyse the stocks.
Stock market analysts and investors use two types of analysis tools; Fundamental Analysis and Technical Analysis.
At an intermediate level, this may be quite new to you and it would be sensible to practice analysing past trends or work with a practice account before using your own money.
Fundamental analysis uses the public information available to value a stock. Investors try to evaluate a stock whether it is valued correctly or not.
Fundamental analysis can use qualitative metrics such as economic growth, business model, market share, and leadership of a company.
The quantitative metrics in the fundamental analysis include reading financial statements. These measures can include net profit, EPS, DPS, free cash flows, and ROI, etc.
Technical analysis uses technical indicators to study the price and volume movements of stocks. These indicators are then used to make quick trading decisions to time the market.
Some of the key technical indicators broadly include:
- Moving averages
- Price trends
- Price and volume charts
- Volume indicators
The choice of using one of these two types of analysis rests on the investor. However, it is wise to use both in conjunction to make informed decisions.
Comparing Brokers and Trading Platforms
Online brokers come with different features and trading platforms. Some of the online brokers would suit the needs of investors with long-term financial objectives. Others may favour day traders with more advanced tools.
A few of the top brokers offer their built-in trading platforms. Most of them offer reliable third-party trading platforms such as MT4.
You can compare different online brokers, trading platforms, and the range of tools they offer. It will help you choose the right broker that matches your investor strategy.
You can get hands-on practice with a free account with most online brokers these days.
Choosing Stocks for Trading
As a beginner, you might have chosen mutual funds over individual stocks. Now, you can choose individual stocks to invest in.
Once you familiarise yourself with analysing methods, you can scan a wide range of stocks. Else, you can choose to analyse your preferred stocks.
Some investors go for a stock that they would’ve been following in the news. Others, like to invest in growth stocks such as blue-chip companies.
At this stage, you should avoid penny stocks though. The temptation to go for quick gains may irresistible but you’ll be better of avoiding these stocks at this level.
Evaluate your list of chosen stocks against fundamental metrics as discussed above. You can then shorten the list by analysing the price and volume trends.
Investors go by the price and volume trends. You can choose stocks with higher volume that offer higher liquidity.
How Much to Invest? Consider Using Leverage with its Pros and Cons
Before committing to trading, consider your financials. It means you should evaluate your risk tolerance and risk appetite.
You should never invest more than what you can lose to afford. Also, do not invest in a stock (or any asset) just because it offers a high risk-reward option.
One way of managing investments is to utilise the leverage option. Leverage means using borrowed money for trading. You can trade more with less personal investment. All online brokers offer leverage as a standard feature these days.
Using leverage can help you invest more than what you have in your pocket. For instance, a leverage ratio of 10:1 means you can invest $10 for every $1 you deposit with the broker.
Leverage can magnify gains. Leverage can magnify losses. Both of these are true while you consider using leverage.
Intermediate-level traders can use different trading strategies to make profits. The choice of choosing the trading strategy will depend on your trading plan, expertise, and availability of financial resources.
Here are some of the common trading strategies used by beginners/intermediate-level traders.
Day trading is one of the most common active trading strategies. Traders close all transactions before the end of the trading day in this strategy.
Investors rely heavily on technical indicators and technical tools to make quick profits. Day trading involves using several transactions in a single day.
Swing trading refers to a trading strategy that takes advantage of “swinging trends” of assets. It means when a trend breaks and sets an opposite direction, traders can get in.
Breaking trends offer volatility and trading opportunities for active traders. However, this strategy needs fairly quick actions before the new trend can establish.
Scalping involves using a large number of transactions to take advantage of minor profit opportunities. All trades in scalping are also closed before the close of the trading day.
Scalping uses precise charting tools and technical indicators to identify the profit opportunities. However, scalping often requires higher minimum deposits and margins with the brokers.
Managing risk is key to success for investors at any level. Intermediate-level investors can deploy several techniques to mitigate their investment risks.
Since most investors choose their individual stocks at this level, it’s necessary to diversify the portfolio. Investors can diversify the portfolio by choosing different asset classes.
Another way to achieve diversification is through choosing stocks or assets from different industries. You should aim to diversify the portfolio by keeping it balanced.
Using Different Order Types
Online trading platforms offer a range of trading order types. Investors can fully utilise these order types to minimise their investment risks.
Some of the trading order types that you should always use include:
- Market order
- Stop-loss order
- Limit-loss order
- Trailing Stop order
- Market if orders
Finally, a trait of successful traders is to know when they must stop trading. Some traders go by emotions even if they lose. Set aside your emotions and revise your trading strategy if it isn’t working.
As you progress in your investing journey, you must learn to analyse the market. You should also learn to analyse a stock or an asset individually. Utilising different trading tools and order types can help you mitigate risks.
You should always focus on diversifying and risk-hedging methods at any level of investing expertise.
A few links to help you
Simply Wall Street is a great tool that does a lot of the hard work for you
Yahoo Finance is also a very up-to-date website for viewing the most recent financial figures for free.
Learn Investing is our own portal that aims to help you develop your knowledge on investing.