5 Main Ways To Make Money in the Stock Market

5 Cool Ways To (Possibly) Make Money in the Stock Market

The Stock Market

The first thing I'd like to mention is, although it's true you can make millions, or even billions in the stock market, it's not as simple as it sounds. There are different strategies playing stocks, each with it's own pros and cons. There are multiple newsletters, free or paid, that will say their system is the best. And, even though some of these systems are legit, you could still lose money. I had to think long and hard how to approach this blog because I want you to make money. And even sticking with what I'm about to tell you, you could still lose. This post is NOT to give any type of advice, it's strictly opinion and my legal requirement is to let you know this post is for entertainment purposes only. Once again, that's not to say you won't make money following this post, it's simply there to give you some education when it comes to the stock market and the different methods. Do NOT use money you can't afford to lose. Yes, there are amazing stories with the stock market, but there are even more horror stories. Think of the stock market as a zero sum game. For every share you buy, there is a seller. For every share you sell, there is a buyer. If the pros are selling their stocks, guess who the sucker is buying it? I will attempt to explain the various ways people use to make money in stocks. IF you get good at it, you have the capability to make some incredible returns. It takes a lot of hard work and time. The most successful stock market guru is Warren Buffett and trust me, he knows about ALL of his investments in great detail. Also note, I will try to determine if certain terms should be explained in detail, but if you're unsure of something, please have a look at the great Google. Now onto the good stuff!

Day Trading

The fastest, most dangerous game in town, is day trading. You could earn big, or you could go broke VERY quickly. Day trading is buying a stock in the morning, and selling before the market closes. When I say before the market closes, I mean ANY TIME before the market closes. In some cases you might only hold a stock for 5 minutes, other times it might be the full day. Some times, it might even be for a few seconds. And sometimes you might buy and sell the same stock within in the same day, several times. Day trading is trying to take advantage of small moves. People that are successful as day traders are VERY successful. The problem is, it's a small percentage. You have to have a good computer, with a super fast internet connection, with a backup power supply so that you don't lose connection. From there, you NEED to understand how the market works. The 'zero sum game' I mentioned up above, is the reason why there are few successful day traders and the ones that are successful, are VERY successful. The easiest way to explain it is this. Say in a one day period there are 2 day traders, trading with $100. Day trader 1, buys a stock at $10 and the stock goes up to $11. Day trader 1 sells his stock to day trader 2 who is now buying it at $11. Day trader 1 just made $1 for a quick 10% gain. Day trader 2 watches as his stock dips down to $10 so he sells for the loss, where day trader 1 picks up some more for $100 at the $10 level. Day trader 1 watches price go back up to $11 and sells again making another 10% gain. The stock goes back down to $10 so now both day trader 1 and day trader 2 get in at $10. Now day trader 1 does something funny, he sells at $10.90 causing the stock to drop to $10.50 but day trader 2 is waiting for $11. Day trader 1 is done for the day and day trader 2 has to close out before the end of the day at $10.50. Day trader 1 made over 20%. Day trader 2, although he made profit on the second trade, still loses money overall. Does this sound like something you're interested in? If so, keep in mind, it will be much faster, with more traders AND we haven't even taken into consideration commissions which will eat up your profit VERY fast. The reason Day trader 1 sold at $10.90 is because he had information that day trader 2 didn't. I'm not going to go into depth on how to day trade, but if you are going to do it, make sure it's with money you don't mind losing. The odds are heavily against you.

Swing Trading

Swing trading is similar to day trading except on a longer time frame. Usually trades are for a couple of days, a couple of weeks, and in some cases, a couple of months. The idea of swing trading is buying a stock when it's low and then selling it when it goes higher. This longer time frame does give a bit of flexibility since you don't have to sell out of your position at the end of the day. And you're not fighting with other day traders who are also trying to buy and sell within the same time frame. With that said, you still want to be eductated on how to buy and sell using a swing trading strategy. As far as success goes, expect to gain about 10% per year once you are good. So if you want to earn say $50,000 per year, you should have a $500,000 bankroll. And keep in mind, you NEVER want to put ALL your bankroll in at once. Maybe 5-10% with a 2% stop loss. You want to find a couple of indicators for stocks charts (yes, you have to learn with stock trading, unlike what a lot of garbage programs will tell you). If you do become VERY good, then you might even be able to beat the 10% per year average.

Momentum Trading

This is similar to swing trading, except in most cases you are going to hold on for an even longer period. But this will depend on the direction of the stock. If it keeps going up, you take some profits and let it keep going. This also requires learning how to not only trade, but have a deeper understanding of the market, and the actual fundamentals of a company. Fundamentals are things such as earning, sales, management team. If you get good at momentum trading, you have the opportunity to make a LOT of money. And not just the six figures as in the riskier day trading option. But if you're good, and I mean REAL good, you could make a million or ten million or more. With that said, most traders fail, so it's better to learn as much as you can. Read the stories and teachings of people like William O'Neal, Dan Zanger, and Mark Minervini. Although William O'Neal doesn't always call his strategy 'momentum trading', it could be argued that it is. In fact, both Dan Zanger and Mark Minervini attest the William O'Neal system to their success. This method still requires you to keep an eye on the stocks daily though, as normally they move a little faster than the 'big guys' such as Coca Cola.

Long Term Investing

Ah, finally, the most boring style of trading there is, but the one that has created not just millionaires, or multi millionaires, but billionaires. Please search for Warren Buffett so you know what I'm talking about. Investing is buying a stock, then forgetting about it. In other words, leave it in their for years. Personally, I think the stock market has changed so it's harder to buy stocks that you can hold onto for 20 years without massive losses before it regains it's price. But as with ALL methods in the stock market, you have to do research. You have to understand the risks. I remember thinking about buying Apple stock 15 years ago (or should I say over 7000% ago). I could have invested a mere $1,000 and now have over $70,000 in my account. So you can make money, BUT you have to know what to invest in. Warren Buffett and other billionaires are not lazy. Investing is your safest route. And you can check in on it quarterly or even yearly to make sure things aren't too out of hand.

Forex

This is trading currencies. You 'could' make money doing this, but you have to be good... no GREAT in order to succeed. Not for the faint of heart, if you trade forex you are trading against the BEST traders in the world. In and out within seconds on an exchange that runs 24 hours a day, to win at this game, you have to KNOW the market and exchange, inside and out. For the most part, stay away.

The BEST Way is YOUR way

No matter which way you decide to trade or invest, you are at risk every time you buy a stock. Even when you are holding onto a stock and it's going up, there is the risk of it going back down, including the dreaded gap down where a stock is one price the one day, then overnight it drops unexpectedly for a loss. Do NOT try to do everything. Find the method that looks like your risk tolerance and then study BEFORE you put any money in. Do paper trading (pretending to buy and sell, complete with a trading journal to see your success). You can make money with any of the above methods. Some will come more naturally than others. My biggest recommendation is find a mentor who has proven success to teach you. That way they can see what you are doing wrong and make corrections. Even then there is no guarantee, but it will put you ahead of the pack. Trading in general is a very psychological thing and you cannot let your emotions get in the way. Which is why investing sometimes is best UNLESS you look at it too much. THen when it goes down a little you will panic, or worse, you will put more money in which can be bad if you don't understand why the stock is moving in that direction.