As participants in the stock market, we often hear of various experienced and established traders and investors, who are considered to be experts in the field of trading and investing.
But who exactly is a stock market expert?
One doesn’t become a stock market expert by spending a long time in the markets. Becoming a stock market expert takes a combination of knowledge and the right mindset.
Moreover, one does not need to be highly educated or certified to be a stock market expert, instead, they just need to have the right stock analysis software which would help them to get insights into the stock market trends and to easily conduct fundamental analysis on trading volume, price, chart patterns, etc.
Anyone with the right kind of skillset, temperament and discipline can learn the basics of trading and investing in stock market.
In this article, we will look at some key points one must focus on, to become efficient stock market experts.
- Practice Discipline:
The first and foremost strong quality of a stock market expert is their discipline.
Discipline forms the core of every profitable participation in the stock market. Whether you are a trader or an investor, remember to be as disciplined as possible to make the best decisions financially.
As a trader, put appropriate stop losses to preserve your capital, and make sure that each trading decision aligns with your trading plan.
As an investor, control your impulse to invest in a bullish rally without research, and control your impulse to withdraw your money out of fear, in a bearish phase.
Make every investment decision after evaluating your financial goals and your risk-return needs.
- Learn how to filter out news:
Discipline plays a very important role when it comes to stock market news.
When we look towards news channels and websites for stock market information, we are bombarded with various “expert opinions”, and a lot of baseless rumours too, which can lead to herd mentality in the stock market.
A stock market expert, however, knows to filter out the chatter in stock market news, and focus on only those events which can directly affect their portfolio.
As per your trading strategy, filter the news you want to take into account while making a decision.
For example, if you trade or invest on the basis of sectors, prioritize the major news events of that sector to see if they affect you directly or not.
Whether you are a trader or an investor, to understand how a news event can affect your trades or investment, you need to evaluate the fundamentals of the economy, the sector or the company you’re focusing on.
- Use both Technical and Fundamental Analysis:
Some might argue that a trader needs to focus more on technical analysis of stocks, and investors need to focus on fundamental analysis.
However, a true stock market expert uses the elements of both fundamental and technical analysis to make the most accurate decisions possible.
A trader can use the elements of fundamental analysis to do a thorough background check on the companies or the sectors they are investing in, while an investor can use technical analysis to predict the future price movements of their investments.
As we broaden our knowledge with both the analyses, we can provide more justification to our decisions and evaluate their impact on our portfolio accurately.
- Periodically review your financial goals:
It may happen that our life’s priorities change, and the financial goals we once set are not relevant anymore.
Also, there might be new goals we may want to plan for, like marriage, retirement, and higher education.
To ensure that our investing and trading actions are relevant to our goals, we should periodically review all our goals and the products in our portfolio as well.
The stock market offers various products on the basis of time durations and risk appetites, and a stock market expert carefully picks out the best possible avenues to achieve their financial goals efficiently.
Here is where the role of stock market education comes in.
- Never stop learning:
The stock market is a dynamic avenue, that is constantly developing to give more investment choices to its participants.
To become a stock market expert, one should step out of their comfort zone, and constantly strive to learn more about the various products of the stock market.
Apart from courses, one can access the plethora of free content provided by market experts in the form of videos and blogs. Many stock market experts also host talk shows and interviews on financial news channels to teach people about their own tried-and-tested strategies.
- Understand the risks of your portfolio:
Once you have learnt about the various asset classes the stock market can offer, you might feel tempted to try out more investment products as your knowledge expands.
However, while this is very advantageous from the point of view of diversification, there is a very important point one needs to factor in while choosing more asset classes – the risk.
Newer asset classes like derivatives bring around a completely different level of risk to your portfolio, which you might not be able to reduce as easily as you can, with a mutual fund.
For example, investing in products like crude oil and gold can expose your portfolio to a range of risks like political risk, inflationary risk, etc.
A stock market expert carefully evaluates the pros and cons of adding various asset classes to their portfolio, by primarily evaluating the risks involved.
As we can see from these points, one needs the right kind of soft skills and technical skills to build the mindset that a stock market expert is expected to have.
Anyone, with the multitude of free and paid resources available online, can practice these simple rules-of-thumb to establish themselves as an effective stock market expert.