The rising stock market condition comparing to the previous few years have opened vast opportunities of investment and saving money by that. The open market, recent economic and financial policies have transformed the investment industry into a more flexible and approachable area for all class of people.
Those with moderate earning can now think of buying and selling stocks and make it as an avenue for income. This revolution has set trends for wide spread investments in stock trading by all types of people from various backgrounds. Sometimes, they do not even have enough idea how to handle a stock portfolio or a single stock. For this often they end up with huge loss. But if you can proceed sensibly with a prior knowledge on stock management and a little awareness on the basics on stock trade, you can save lots of money. Here are few tips on sensible stock management process to save money
- Before you start buying a stock analyze the Markowitz model condition and the prospects of various industries including different companies. There are many risk factors that you always should be aware of. There can be market risk, credit risk, interest rate risk, inflation risk, currency risk, liquidity risk etc.
- Calculate the beta of the market. As you will know the beta value, you can easily apprehend the forthcoming changes in stock market.
- Estimate the correlation. It will help you to presume the change of an index with the time series considered.
- Acknowledge the volatility of the stock. This is the ultimate help to determine the behavior of a stock.
- The return and risk ratio of a particular stock market can guide you on where to invest and how much to invest.
- Also calculate the value at risk to measure the risk of a single stock or a stock portfolio.
- To neutralize the risk, consider the option for hedging. Hedging is the complete process of analyzing and determining the necessary steps to be taken on a single stock.
- Consider the drawdown option to save money. A drawdown at the correct time can fetch you huge amount of money. Also the amount of drawdown affects on the profit value.
- There are different options of position sizing. There are fixed amount model, baseline model, equal leverage model, percent volatility model etc. Choose the most suitable one to save maximum amount of money.
- As you buy the stocks, determine along side how much money you are prepared to loose. Then set a stoploss level to save money.
- Along with stoploss level, calculate the cutloss and takeprofit levels. Also test the liquidity of the stock to determine the characteristics of your stock.
- Do not forget to raise the stoploss level as your stock starts to get profit.
- Along with these basic financial and market analysis procedures, you must enhance your own personal character to suit with the changing stock market. You need to be very careful, organized, analytic, patient and a strong ability to take decision sharply and implement them completely.