For the most part, stocks that trade at higher volumes have higher implied volatility, so it makes more sense to buy those stocks at lower volumes instead. But there are a few exceptions. If you’re looking for a particular stock with very little volume at an attractive price, for example, a company with little potential for volatility, it might make sense to focus your investing efforts there. For example, many low-volatility stocks in the energy field, in terms of their level of volatility, have very low prices. For example, Schlumberger (NYSE:SLB ), one of the largest oil companies in the world, trades at less than $1 per barrel, compared to about $25 for its competitors in this sector.
In addition, if you choose a lower value-based stock that’s likely to have higher implied volatility in the future, like a stock that’s traded around 3X earnings for the past five years, it might make sense to focus your investing efforts there. A portfolio based on those stocks that trades around 14% upside would give you a higher probability of making money in the long run.
There are many reasons to favor certain types of stocks, but at the end of the day, you should only invest in stocks you can confidently predict to have a high probability of producing positive results in the future.
So how should you invest if you’re not well versed in stock picking, stock strategies, or trading?
You should try not to invest in the stock market if your general economic status is poor. As someone who made roughly $125,000 over the course of his entire life over 40 years – not including savings – I understand that it is often difficult to plan for such investment opportunities. Investing in a small company (as opposed to the traditional mutual fund you’re probably familiar with), an individual investment vehicle, or through an investment exchange could give you a head start. Also, if you can live in another country – or even with friends and family who live abroad – then there isn’t a lot of need to invest in the real estate market (unless you’re actively looking to retire abroad).
What about when it comes to trading? Isn’t the stock market a dangerous business?
Of course, trading carries risk. Whether you go long or short is entirely up to you. And when you decide to buy or sell stocks, you should know your risk tolerance. I can assure you that you will trade a little and then have to sell a little, but the
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