How to Be Efficient on the Share Market in 2020?

How to be efficient in the stock market in 2020

Entering the share market is easy. However, staying consistent there can be a real pickle.

Aspiring traders are overflown with tons of stocks to choose from. Such diversity requires traders to be thorough and determined. Both in their research and execution.

To give you a hand against stock exchanges, here’s a piece on successful investing in 2020.

Let’s dive in!

The Stock Market and Stock Trading – Essentials

First, before any trading, you need to know what you’re getting into. The basics, the reputable strategies, and the market state.

The Market

The “stock market” is a collective term to compile markets and exchanges, related to purchasing, selling, and issuing shares of publicly-held companies.

Trading and investing there happens either through formal exchanges or over-the-counter (OTC). The latter means it is conducted via a broker-dealer network, rather than on a centralized exchange.

Companies, not listed on institutionalized exchanges, fall in the OTC category.

The most prospering stock exchanges in the U.S. are as follows:

  • New York Stock Exchange (NYSE)
  • Nasdaq
  • Better Alternative Trading System (BATS)
  • Chicago Board Options Exchange (CBOE)

Those four exchanges, along with a number of other, smaller ones, form the U.S. stock market.

On it, you can trade stocks, equities, exchange-traded funds (ETF), corporate bonds, and derivatives (based on stocks, currencies, commodities, and bonds).

The Trading

“Trading stocks” refers to buying and selling assets on the stock market. 

One billion shares “change hands” in a single day on the exchanges. Some say it’s a technological wonder, others prefer not to dwell on its efficiency.

Nonetheless, established markets process every trade with the greatest care – be it for 100 shares or 10,000 shares.

There are two main ways to conduct a trade on the stock market – right on the exchange floor or digitally.

As of December 2017, many exchanges try to catalyze electronic trading as the sole method. For example, Nasdaq support only this kind of trading. 

However, physical trading is still cherished by old-schoolers, and will probably remain a part of the picture for some time.

Read Up Before You Enter the Game

P/E ratio, EPS, ROE, and CAGR.

Unsure what these terms represent? Now imagine your profits depend on calculating them properly.

In order to be a successful stock trader, you need to know crucial financial metrics and definitions. 

You need to be able to compare different promising companies. Otherwise, you risk trading on mere symbols, rather than on actual value.

Among the most famous metrics in stock trading, P/E measures a company’s current share price relative to its earnings per share (EPS). 

With P/E, you can calculate the relative value of a company or perform a historical comparison of said company.

High P/E usually means that the inspected stock is over-valued. It could also mean a high portion of investors expects high growth rates in the future.

  • Earnings-per-share (EPS)

We mentioned that one in the previous definition. So, in short, you calculate EPS by dividing a company’s profit by the outstanding shares of its common stock. 

The result relates to the company’s overall profitability.

The ROE ratio measures the return rate, received by owners of common company stocks on their shareholdings. The higher the ROE, the better a company is at generating returns on shareholder investments.

A guy following closely the stock market

CAGR calculates the rate of return, required for an investment to reach from its starting balance to its ending balance. (assuming that the company re-invested profits at the end of each year of the investment’s time-frame)

It’s mainly used to define how steady a company grows in value year-over-year.

You can calculate CAGR with the following formula:

CAGR = (EB/SB)^(1/# years) – 1

Where EB stands for Ending Balance and SB stands for Starting Balance.

These were just a warm-up. To become a stellar stock trader, you’d need to read up a lot. Articles, forums, trading books, webinars, and expert advice – gather as much knowledge as you can get before you form your A-game!

Study the Most Successful Investors

Warren Buffet, George Soros, Peter Lynch, and John Templeton are a few of the few greats on the investment field.

They’ve built their fortune on diversified investments and can serve as inspiration for future traders. You can learn from their perspective, market decisions, and their overall mindset towards stock trading.

Follow the Stock Market

Wall Street Journal and Bloomberg are the leading stock news platforms, at least for us.

You can also follow CNBC, MarketWatch, and even Yahoo Finance to be in the loop constantly. Don’t be intimidated by the trading lingo or the seeming superiority of authors.

In time, you’d be able to understand them perfectly, and even add on their deductions. Persistence and determination are key to a profitable trading career.

Practice Before the Real Deal

I have to say, I find practice accounts unnecessary. However, they may be the right fit for hesitant beginner traders.

Opening a trading account is easy with many brokerages. It provides you a safe overview of the market. You can practice different strategies, calculate growth, and experiment. 

Keep in mind, it’s a bit different than actions on a real stock exchange. Don’t let demo-success over-boost your confidence. 

Treat the markets with respect and they shall return the gesture.

Excel Through Experimentation

Trading stocks in 2020 can be overwhelming.

The market evolves with each passing day and we, as investors, need to adapt to it. Additionally, we need to take other investors into account as well.

Furthermore, as of 25th of June, 2019, there are approximately 630,000 publicly-traded companies, available across all global stock exchanges. That’s a lot!