Share Trading

The basis of share trading is to buy low and sell high.

In many ways this is gambling, because you have no idea what the price will do after you buy it. Despite this, some shares have predictable characteristics.

The shares you are most interested in as a trader, are ones with high volatility. This means that their prices fluctuate extremely. You also want shares that are fundamentally sound, so that the company doesn't go broke. If you know that the share price is going to fluctuate between a reasonable high and a reasonable low, then you can buy close to the low point and sell close to the high point. After you have sold near the high, you wait for the share to return towards its low point. Then you buy it again, and sell it again when it gets near its high point.

If the price is $30, and it varies by $1, then you make 3% profit. 3% profit is not a lot compared to a rental property with a 10%, or even 5%, yield. The trick with shares is that if the price fluctuates every three days then in a year, and 100 trades, you have made 300%. This is considerably better than a 10% rental yield. It is even better than a 10% rental yield leveraged by an 80% loan to value ratio (which gives 50% return on investment).

The main problem with shares is that you are gambling that the price will go up. Even with a predictable share, there is a chance that company management or the world in which it operates will do something silly causing the share to plummet. It is not a good idea to have bought a share just before it plummeted.

Posts in this blog should not be taken as investment advice, merely as views of a general nature. Individuals should seek qualified advice tailored to their specific circumstances from licensed advisors.