How to choose your investment strategy?

How to choose your investment strategy

Investing money in stock market is not something to be taken lightly. Many private investors consider being able to invest in financial markets overnight thinking that this does not require any learning or preparation effort. False! It is necessary to know one another well and to choose one’s investment strategy before starting to buy and sell financial assets.

What should you think about first? How to know that we make the right decisions? How to be sure that one chooses the right investment strategy?

The key to investing well is to get to know each other

There are several questions to ask yourself before starting your trading activity to determine your investor profile . It is therefore a question of getting to know each other in order to succeed in choosing your investment strategy. Indeed, it is necessary to determine our risk aversion  (are you ready to take more risk to obtain a higher gain or do you have trouble managing your stress if your investments are volatile), to determine our project of personal and professional life (what are the reasons for investing your money in the stock market, do you have a particular project), to know our strengths and weaknesses both emotionally and intellectually (how do you manage your stress, do you know the financial markets and what makes them move), and so on?

I recommend you to read the paragraph Well think about your trader profile and ask you the good questions of our previous analysis:

 5 ESSENTIAL STEPS TO BECOME A TRADER WITH A FULL-TIME EMPLOYMENT

Our investment strategy must enable us to achieve the objectives we have set according to a specific, previously determined goal. It is in keeping with our investment objectives that we will be able to choose our time horizon and the type of financial products that best suit us – this will also help us allocate our capital appropriately and appropriately.

Our investment portfolio must reflect our financial objectives and trade profile.

The composition of our portfolio will therefore reflect our financial strength, our liquidity needs, our psychology and our tolerance for risk. If you are risk averse, it is not prudent to invest in stocks with leveraged products like CFDs or Turbos for example.

We must select the different investments in which to invest according to:

  • historical performance but also the expected return on the asset in question,
  • the level of risk of the asset – historical volatility,
  • the level of risk you are willing to accept – the maximum loss relative to your total capital,
  • the level of liquidity of the asset,
  • idiosyncratic risk of assets – specific or intrinsic risk that affects only the asset in question,
  • systemic risk – risk with macroeconomic consequences, a risk that affects all securities, an entire economy or a global business sector.

Indirect Management vs Direct Management

Our type of management also varies according to the criteria mentioned above. There is direct or individual management and indirect or collective management.

The first is for the investor to invest his money directly on the stock market by buying / selling assets via a securities account or a PEA for example. Indirect management is linked to an investment style in which the investor places a sum in a portfolio of securities held with other investors such as UCIs – Undertakings for Collective Investment – which includes for example the SICAV – Société d’Investissement open-ended investment – or the mutual fund – mutual fund.

Direct management: choose your trading style

Finding the right trading style, which depends on your personality, availability and of course your trading plan, usually improves your trading results as you approach the markets with a more positive attitude. There are different ways to trade markets including scalping, day trading, swing trading and position trading.

How to select the financial assets to invest on?

In general, there are 3 main types of market analysis: Fundamental Analysis, Technical Analysis and Feeling Analysis. These 3 types approach markets in a different way.

Fundamental Analysis aims to evaluate financial products by estimating their intrinsic value and the difference between this value and the market value. If the asset in question is a business, the question is what can affect it, such as the economic cycles, the prospects for the evolution of its sector of activity, the financial health of the enterprise and its prospects for growth, how it is managed, etc.

Technical Analysis (TA) is based on the study of graphs and price evolution in order to evaluate a financial product. One of the hallmarks of TA is that prices reflect all the information available. Thus by studying the graphs, investors seek to identify trends, important levels, chart figures that can give an indication of future price developments.

Market Sentiment Analysis is based more on the analysis and understanding of how investors think and react to published news as well as their expectations for the future evolution of an asset. .

Leave a Reply

Your email address will not be published. Required fields are marked *