Steps to Investing in the Stock Market

Investing in the stock market takes preparation.stock market analysis screenshot image by .shock from Fotolia.com

When the New York Stock Exchange took its original shape in 1792 with the signing of the Buttonwood Agreement, prominent merchants, along with stockbrokers, were also part of the historic pact that allowed the brokering of securities between issuers and investors. Companies and businesses created the needs for such a marketplace. The idea of a secondary market did not surface until later when people realized that money could be made by reselling stocks to others who saw value in a company. Over time, stock investing began to have a speculative trading element as valuation of companies sometimes became subjective. Investing in the stock market today is a task of uncovering business values through stock prices.

Studying Business And Observing Market

Investing in the stock market is a learning process, which may have to be repeated sometimes after initial failure to achieve any success for those determined to stay in the business. Stock investing is a profession of putting money to work through understanding other professions and their businesses, and the stock market is where investors and money managers operate their business of buying and selling other companies--in the form of stocks. The outcome of an investment business depends on how the investor values a company and thus its stock in the midst of constant actions of the stock market. Understanding the business of a company is vital but observing market actions as reported in various financial information outlets of TV, print or the Web is absolutely complementary.

Investors can make money in the stock market using seemingly different strategies that suit to individual investors' own situations. Some may be at their best when following a stock and its business for the long run, while others can be very masterful about exploiting the volatility of a stock on a daily basis. Personal finances can also dictate investment styles. For example, investment funds that require a quick turnaround is better paired with a short-term trading tactic as opposed to a long-term investment strategy. A strategy also includes whether to pursue value stocks or growth stocks and how to balance investments on a global-market basis.

An investor's business knowledge and personal interest play an important role in picking stocks. The ability to interpret economic date also guides the stock selection process. Someone knowledgeable about the energy sector and interested in the oil industry may choose to invest in oil and gas producers. Someone else may have a special take on railroad transportation and the person's target companies can include anything from railroad operators to railroad-related suppliers, such as rail-car makers. However, companies can make or lose money in every business segment, industrial or technology, and thus researching individual company management is equally critical. For example, a study from Harvard University suggests possible relationship between a company's board diversity and the stock performance.

With an online brokerage account, placing orders and executing trades can be done with ease in seconds. While forming investment strategies and researching stocks, people should also think through the amount of investment money they would like to work with, which affects the number of shares they buy and at what price range. When placing a real-time order, the short-term trader may follow the daily chart and an intra-day chart. Charts can be helpful even for long-term investors because a better trade position based on charting information achieves additional margin of safety. Monitoring investments and deciding when to sell can be as hard as placing a buy order. For instance after purchasing, if a stock falls, the short-term trader may consider to sell to limit losses, whereas the long-term investor may want to buy more to lower the average buying cost.