Evaluation Of Investor Awareness On Techniques Used In Stock Trading Before Their Investment
Over a few decades, the number of market participants has increased. This is because investor awareness is increasing and confidence is being maintained with informed investment decisions. There are various factors that influence retail investors’ perceptions and affect an investment decision. The awareness of investment levels varies with demographic variables, like, age, gender, educational background, marital status, and occupation also. Investors are very cautious about market trends as it impacts the profitability, risk and returns on investment (ROI). ROI is a very important factor that influences investment decision.
Investors consider different sources to analyze the market. Let us find out what are the aspects and strategies that investors seek to identify and analyze before the stock market investment or hassle-free trading activities.
- Determination of Expected Returns
Return is the primary focus of every investor or trader. A rate of return is a percentage of the investment’s cost indicating a profit over a specified period. An individual decides whether to hold the investment for a longer or shorter period based on the return percentage. The stock market is unpredictable, highly volatile, and reactive to words or news that impact the market trend activities instantly, but its nature is resilient and helps to recover soon.
- Acquaintance of Risks
Practically the risk and returns are directly proportional in the stock market. Yet, investors’ perceptions of the risk return may vary. They analyze the level of risk in stock investment or trading and have an acquaintance with technical knowledge to overcome the risk factors before trading or investing in the live market.
- Research and conduct due diligence
Investors make an effort to research the company they wish to invest in thoroughly. Fundamental research and technical analysis are inevitable for successful stock investing and trading. Such easy and necessary strategies can help retail investors to book profits, increase ROI and avoid huge losses. Investors can go through the company’s financial reports and assess the competency of the board of directors of the company you are considering investing in. Also, you can research independently on its sector. This way, investors understand the company’s growth prospects before making investments.
- Determination of financial goals
Whether you are an investor or a trader, you should have a plan. It is the foremost strategy that you require to master. Goal-based investing and strategizing trades can help you to work towards achieving your set financial goals. Evaluate your financial requirements and then set your short-term and long-term goals. Identify the most suitable investment type, like IPO, mutual funds, equities, bonds, etc., the course of your investment, the amount, and the avenue most suitable for your needs. If the investment horizon is short, investors can attempt to profit from short-term moves of a stock. If you have a longer investment horizon, you can consider blue-chip stocks to make investments as they can offer good returns.
- Profit targets
Since the market is volatile and unpredictable, no individual can correctly predict its movements. Therefore, investors need to determine their exit prices before trading a stock. Once they reach the set profit target, it is good to close the positions without any greed. Do not ever wait for higher returns due to greed. You do not know when the stock price can move against you, which leads to losses.
- Risk Tolerance
Risk tolerance varies from investor to investor. It means what level of impact of market fluctuations investors can tolerate on the overall investment portfolio. It depends on your financial situation, income, and investment portfolio. Since the stock market is volatile, It is necessary to know your capacity to bear risk. It will help you to opt for suitable investments. For example, a low-risk investor can consider large-cap stocks with stability. Meanwhile, investors with a high-risk appetite can consider mid-caps and small-caps that are risky but offer greater returns and growth.
It is a common strategy for all investors. It avoids risks as you do not put all your funds in a single investment. In case an investment in your portfolio does not favor you, another one can favor you and help you to balance the overall portfolio returns.
It can be concluded that the investors are ready to invest in the market considering risk factors. They understand the lack of knowledge of trading techniques can result in huge losses. They keep working on knowledge and seek guidance to invest or trade in the market with increased ROI or short-term profitability. They can consider gaining knowledge via media, books, online and stockbrokers. They want to learn how to use the techniques instantly in different situations and be aware of the right time of investment.