The fundamental goal of every stock trader is to make profit, and minimise as much risk as possible, with every single trade. However, this goal is easier said than done, since it requires a wide range of different things, including skill, preparation, knowledge, and patience.
One key component of achieving this goal, is being able to successful monitor everything surrounding your trades. In order to increase your chances of profit, you need to have a full awareness of your asset, the market, and various other things, and use this information to execute the best possible trade.
To do this, you should know exactly what factors you need to monitor when stock trading. In this article, these factors will be revealed, along with an explanation of how, and why, you need to monitor them.
Shares and market behaviour
One of the most essential things to monitor when trading shares in a company, is the movements of the shares themselves.
Stock markets are highly liquid, with large volumes of trades being executed every day. Therefore, to ensure your trade is successful, you need the share prices to move in the direction you want – this will depend on your position, such as opening a long position with a contract for difference (CFD).
Your trades can be made much more accurately, by monitoring share movements correctly. The best way to do this is through the use of technical indicators.
These are mathematical calculations that, when applied to market data, can reveal any trends or patterns occurring in the stock market, and potentially predict where the price will move next. Something such as a simple moving average (SMA), can distinguish a direction of movement on share prices, and allow you to establish its trajectory.
Thus, when you monitor these movements, you will have a more accurate vision of the market, on which you can execute trades with a higher chance of profit.
The next important thing to monitor, is the performance of the company. When investing in shares, you own a fraction of the company, its assets and earnings. This naturally means the company’s performance will have, potentially the most, significant impact on its share prices, and consequently, your chances of profit.
To effectively monitor company performance, there are various things you could look for. For one, you could analyse statistics, such as the return on assets (ROA), or return on equity (ROE) of the company, to see how well they are managing their assets.
Alternatively, you could look at wider perspectives, and see how the company is being viewed in the eyes of the industry, i.e., negative news may result in lower share prices. Also, look out for any internal company changes, such as a restructuring or re-branding, as this will all have a knock-on effect concerning share values.
By monitoring the company of which you have invested in shares, you can tailor your trading decisions based on how its performance is likely to impact share prices.
Changes in the economy are also vital to monitor when stock trading, as they will affect financial markets on a larger scale, including the stocks you’re trading.
For instance, you should be aware of the interest rates of the country, and how they will impact your company’s shares. Often, if interest rates are set to spike, investors will start to buy assets in various markets, in the hopes that the increased interest rates will provide a better return on investment (ROI).
For stock trading, this could mean share prices in a company will start to rise, so you will be able to alter your trade approaches accordingly, to make the best profit on this economic change.
Economic variables are key to determining share prices, so make sure you monitor these continuously with each trade.
The last thing to monitor when trading company shares, are any external factors which may indirectly affect the shares’ price movements.
These factors can vary greatly, and include a wide range of different situations and events. One example, could be the political climate of a country. This could be something as simple as changes in international relations affecting company trade supply, to something more on the extreme end, such as a war or political conflict.
These political events can majorly alter the share prices in your company. So, before it becomes too late and you’re hit with the unexpected impacts of these events, be sure to monitor them and adjust your trades ahead of time.
Monitoring every aspect of share trading can prove quite tricky. But by keeping a close eye on these key factors, you will have a great starting point to begin making more accurate trades, that consist of a greater chance of profit and minimised risk.