Prof. Tyler yamazaki
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trading
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- Buy and Hold
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Averaging Down
This is an aggressive strategy, so be careful when you use this strategy. The way this works is as follows: You pick a set of stocks that you think would be profitable. Now, if the price drops, you then buy the same stocks again. If the price decreases again, then make another buy order. Your advantage here is that you get to buy the stocks at a lower price each time. Of course, such is caused by the decrease in the price of the stocks. So, how do you profit? You profit once the trend goes upward. This means that you will profit a big amount when the value of the stocks increases and shoot up above its original price (the price when you first invested). Since you have bought the stocks at a “bargain” each time the price went down, then you can expect to get a big profit when the price shoots up. Considering the volatility of the stocks market, this behavior is considered normal and expected. Although this may seem like one of the best strategies, you should be cautious of using this strategy. The problem here is that there is always the possibility for the price of the stocks to keep on dropping. It may drop too low that you will already run out of money before the trend changes; and, even in the case that it becomes favorable, it may no longer be able to recover its original price. Buy and Hold This is a common way of investing in stocks. It is believed that although it is difficult to tell the direction of the stock market for a short-term period, you can expect for the prices of the stocks to increase in the long run. This is because everybody in the stock market is aiming for that direction. Hence, it is argued that if only you can hold on to good stocks for a longer period, then you can enjoy profits in the future. This is the expected outcome considering that a capitalist society is involved. Take note that since you will be holding the stocks for a longer period, then it means that you will also be trading with less frequency. Therefore, you will have lower cost and taxes to worry about. |
