Why trade stocks?

The aim of any investor in stocks is to multiply its savings in a certain rhythm and by taking certain risks. Setting a gain target over a time interval is subjective because you have to consider the circumstances of the corresponding stock market, its potential, thus outlining realistic expectations helping you to develop an effective investment strategy.

There are a few questions that we should ask ourselves before investing in stocks:

1. What return target do I set? Is an annual capital gain higher than the interest rate satisfactory? Or 30%/ 50%/ 100% at least?
2. Why do I buy a stock? Why do I expect the price to increase?
3. On what time horizon have I made the investment? Do I wait for the price to increase within a 1 month/ 1 year/ more than one year interval?
4. What is my risk profile? How do I react if the price drops 10% compared to purchase price? If the price will stagnate for a certain period of time, do I sell or keep buying?

The answers to these questions should be compatible both among themselves and with the corresponding stock market. For a return target way above the market’s average and/ or over a short time span, the risks match up.

There are several types of instruments that can be used to assist your investment decision, these being correlated with the time span of the investment as well. The most important instruments are the fundamental and technical analysis.