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Effective Trading Techniques for Financial Stocks

Stock trading is characterized by whipsaw activity in the financial markets. Stocks rise and fall owing to a myriad of factors including geopolitical uncertainty, interest rates, inflation, macroeconomic data releases, and so forth. Reading the financial markets – through technical and fundamental analysis – is sacrosanct. Unfortunately, far too many novices end up disappointed with their stock trading pursuits by simply failing to accurately assess the available data. It must be remembered that there is no failsafe technique to guaranteed returns in the stock market. Equities prices are subject to all manner of volatility factors – internal company dynamics, and external factors alike. However, there are multiple checks and balances that can be employed to help you achieve higher success rates with your chosen stocks.

Why Are Traders Gung Ho for Financial Stocks?
Financial stocks are buzzing right now, thanks to a trifecta of elements. These include: a major tax overhaul, deregulation of the financial sector vis-à-vis Dodd Frank, and interest rate hikes. Successful implementation of stock trading practices provides a degree of assurance for investment purposes. Some traders prefer to enlist the support of professional brokers and investment analysts to pick stocks on their behalf. While certainly a meritorious concept, it is better to learn the intricacies of trading to make these decisions oneself.

Phongphan/Shutterstock.com

Phongphan/Shutterstock.com

Stockbrokers make a living out of charging fees and commissions on managing financial portfolios. This eats into your profitability, but it is a good place to start. Reputable trading platforms are sacrosanct. Fully licensed and regulated brokers offer peace of mind that client funds and company funds are maintained in segregated accounts, so that your cash pending investment in financial stocks and other stocks is never at risk if the broker happens to be liquidated. It is always preferable to use a brokerage that provides invaluable insights into the financial markets. Things like technical and fundamental analysis are essential to your trading success.

Whether you are trying to make quick profits from market volatility with day trading, or you have adopted a slightly longer investment horizon as a swing trader, you will want to have all the requisite information you need to make sound financial decisions. Typically, a day trading activity is characterized by high-volume securities. These types of stocks are hot movers – large quantities of buy and sell orders are placed on a regular basis. There is plenty of liquidity with these investments, indicating that there are enough buyers/sellers on board. It’s important to understand what volatility really is. It describes price variations around the mean – the higher the variance, the greater the potential profits, or losses.

What Are the Pros and Cons of Day Trading Activity?
Besides for the excitement of day trading activity, there are many other elements to consider. The profit motive is always important, as incremental profits can sum to a healthy overall return by the end of the week. Analysts routinely point out that single digit returns on multiple trades can sum to double digit returns by the end of the week. This is especially true of leveraged trading. It is not outside the realms of possibility to have 100% returns on investments in next to no time at all.

However, there are risks with day trading and swing trading activity – market volatility and leverage can work against you as well. A common misperception that many traders make is focusing on the win/loss ratio instead of the overall percentage gain ratio. It is possible to win 70% of your trades and still come out behind the eight ball if investments in the losing trades were more than your investments in winning trades!