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Anyone who is beginning to learn how to invest in the stock market should know that investing can be both risky and profitable, there is no doubt about it. It has these two major contrasting features due to its highly volatile nature and frequent fluctuations. So, investing in the stock market can be very scary for the weak hearted!

Supply And Demand

Sometimes, the predictions can result in success, but there are also times when the exact opposite to what is predicted will occur. However, at the end, everybody expects that the market will go up eventually… and it always does at some stage. The stock market is always about supply and demand. The supply is amount of shares present in market whereas demand is the amount of shares being purchased.

Volatility And Fluctuation

You need to be very aware that the stock market is extremely volatile and fluctuates frequently; it is controlled by domestic economy and global growth. During good times, when capital investment is poured into the market from all sides, the market rises faster and you get good returns on your investment.

Similarly, during tough times when domestic economy is declining and there is no capital coming in, even from foreign exchange, markets perform worse during these times it can be very easy to lose larget amounts of money . This is the general nature of the stock market… unpredictability, and so it is said that purchasing stocks is quite simple but knowing WHEN to buy and sell that stock is the hard part. Not only do you need to know the best time to purchase that stock,  but you should also know approximately the right time to sell the stock and gain the profit, which will surplus the commission charges.

But… How do you do that?

Exit Strategy

Knowing when your stock has become a profitable purchase is not the problem, It’s making the decision to sell and recoup that profit that can be the hard part. Here is one way to go about doing so…

Generally, when we buy a stock, we intend to earn some profit by selling it. In any form of stock market trading, you should have a backup plan, a strategy to exit from the stock. This strategy should include making a good profit and on the chance of loss, making that loss extremely minimal, if any loss at all. This is known as exit strategy. Lets take a look at a simple example of an exit strategy…

Let’s say that we make a decision to sell our shares as soon as the share price goes 25% higher than the purchase price. So, when you buy a share worth of say, $50 each and if the market goes up and the share price goes to $100, you would be happy of course! but… you would also be asking yourself what you should do next, you could either sell the share at that price, gain profit, and get out of the market or you could hold the share and wait to see what happens next. If you decide to sell the shares, you will make a tidy profit, however, you may not get another opportunity to get in on that particular stock at the low price that you had first purchased for. Then there’s always the chance that if you hold off, the share price will plummet and your profit will turn into loss. So what to do? The answer is, when your share price reaches $100, you give a stop loss of $75 on your share. This will give you a 25% profit, which is not too shabby and potential losses are very minimal, if none at all.

Buy And Sell Strategy

The question that now arises is when to buy the stock? It goes without saying that we should always try to buy when the market is down and sell when it is high. It is true, but unfortunately things don’t always happen that way . The market may just keep sliding down while you are waiting for the rise.

So, you should apply a strategy of buying when the shares are in momentum and sell at higher prices. For example, buy a stock at a price of $10, but only when it has already gone from $5 and risen to $10, it shows the share has suffered losses, but now it is showing some momentum. This basic stock market investing strategy is known as a buy and sell strategy. This type of stock investments strategy can help you to make considerable market gains with minimal exposure to loss.