Stock Market Strategies for Individual Investors

Most serious investors have a keen sense of their own risk/reward profile--their investment style so to speak. New investors on the other hand may be at loss in terms of finding and embracing a particular investment style. They've taken one look at their 401k, called their broker and said; "Um no thanks; sell, sell, sell!" Theirs is a resounding exit strategy and, for many more established investors it's either that or a steadfast sideline strategy. Well, that's no fun. You have to be in the game to win at the game.

So let's take a look at this for a moment and try to analyze it. Is the Stock Market today more like a game? They might as well relocate Wall Street onto the old Las Vegas strip what with all this volatility lately -- Just roll the dice! Seems we investors must be a lot more flexible because gone are the days of 'buy and hold' at least in the foreseeable future. Even the media have been extolling the virtues of technical trading of late. I pointed this out in a recent post to my blog recently. In any event, perhaps the best way to "beat the house" or better stated in business terms; to gain an advantage in the market is to become more aware of your own investment style. It really boils down to your level of risk tolerance and your ability to adhere to your own investment guidelines. The "glue" that will help you stick to a plan (if you'll pardon the expression), can be summed up in one word -- Discipline.

Now, assuming you have the discipline enough to carry out your plan, you would well served to determine an investment profile for yourself. That's the easy part because there are basically four investment styles to choose from: 1.) Prudent, 2.) Conservative, 3.) Aggressive, and 4) Speculative. One of these styles will most definitely fit your needs and chances are, you'd be better equipped to pick stocks based on your own investor profile.

For example, the prudent investor will search for stocks that are undervalued yet have exhibited stable, predictable earnings. The conservative investor does not like to take on a lot of risk, so they buy low growth, good performance stocks that pay nice dividends. Aggressive investors are attracted to the potential big-gainer stocks and don't mind being exposed to significant risk. Finally there are the speculators -- the "buy the rumor, sell the fact" kind of investor. The speculative investor likes to trade the news with little regard to risk and perhaps more of an appreciation for heartburn medication.

Savvy investors who take the time to formulate their investment profile can gain a better understanding of the overall risk involved in stocks and as a result, be better prepared to manage it. In other words, invest a little time building a foundation before going out to build that skyscraper. I'm sure Donald Trump would agree.

The concept of position sizing is a very important, straight forward strategy that every trader should implement. Using the practice of position sizing will dictate the amount of money to allocate for a trade. The rule of thumb is to never risk more than 2% of your trading funds on any one position.

Brian Hunt, Editor in Chief of Stansberry research explains this thoroughly in his excellent article entitled A Trader's Best Friend. There you will learn about the "R" concept and in case you haven't guessed already; "R" stands for risk.

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