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| Knowing the basics will help you understand how stock trading works |
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OTHER FINANCIAL NEWS |
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The Kenya Association of Stock Brokers and Investment Banks (KASIB) has come up with an investor education handbook that assists investors to understand the terminologies, nature and operations of the stock market. We will be bringing you excerpts from the manual, which adds value to your investing ventures.
Getting started
Stocks can be bought and sold by anybody who has money. Knowing the basics will help you understand how stock trading works. People who have knowledge about trading are the ones who are most likely to be successful in the investment industry.
Most stock trading activities are done through an intermediary called a stockbroker. Brokers take and execute orders from the investors, and can also offer investment advice and analyses for their clients.
1. Finding a stock
This is the most obvious and most difficult step in stock trading. With a wide variety of stocks to trade in, a good guideline is to consider first in which sector you wish to trade in.
Once you have decided in which sector you want to invest in, you can then commence researching for a stock.
2. Fundamental analysis
A lot of short term traders might argue with the need to do any fundamental analysis at all. However knowing the stocks past history and the latest up to date news regarding the stock is very crucial.
3. Technical analysis
This is the part where the indicators play a part; volume, moving averages, relative strength index, support levels, resistance levels and all the rest. Whichever batch of indicators you choose, whether they are lagging or leading, may entirely hinge on where you get your information from. Your stockbroker will guide you on the relevant technical analysis data.
4. Follow your choices
Once you have committed to a couple of trades, you should then start to manage them properly. For instance if the stock is meant to be a short term trade you would then obviously be watching it more closely for your exit signals. It it’s a longer term trade you then of course need to set up different time frames such as weekly or monthly checkups on the stock. This effectively frees up and gives you more time to do other things.
You can use this time wisely for keeping up to date with the news, determining your price targets, set stop losses, and keeping an eye on other stocks that you may want to purchase in the future.
5. Keeping an eye on the bigger picture
This is best achieved by following the particular sector in which you bought your shares. For instance, if you are expecting a share price to go up on an agricultural stock you purchased and nearly all of the other stocks in the agricultural sector are also rising, then this is confirmation that you may have made the right decision.
But of course the reverse holds true as well. If the agricultural sector is starting to show a decline then it might be a good idea to take your profits and run. By knowing in advance and being aware which sectors are heating up or cooling off stacks the odds in your favour.
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