There are two major ways to trade in the stock markets: picking stocks at random or doing research to determine which stocks to buy and if and when to sell them. Obviously, thinking things through will give you far better results. However, there are hundreds of different strategies to pick which stocks you want! A few of them are the tried and true standards that investors have had success with - those are the ones new investors should start with and see how they perform. After they understand those basic strategies, they can branch out into more complicated strategies.

Protecting your investment by reducing the risk that comes with holding a certain stock is known as hedging. A put option makes it possible to sell the stock for a set price during a predetermined period of time. This will offset some risk that comes if the stock decreases in price. The put option value is increased if the price of the stock happens to fall.

The most costly hedging strategy is that of buying put options against individual stocks. Buying a put option on the stock market itself may be a better idea if your portfolio is broad. That way, you will be protected against general declines in the market. Selling financial futures, such as the S&P 500 futures, is another trick to hedging against market declines.

This approach became popular in the late 1990s. The plan is to purchase the stocks with the best value on the Dow Industrial Average by selecting ten stocks with the lowest price-earnings ratios and the highest dividend yields. Companies on the Dow Index are well-established businesses that provide dependable investment performance. The notion is the 10 lowest on the Dow possess the greatest potential for growth in the coming year. A new spin on the Dogs of the Dow is called the Pigs of the Dow. This method chooses the five worst Dow stocks using the percentage of price decline from the previous year. As with the Dogs, the idea is that the Pigs stand to bounce back more than the others.

Buying stocks with money that is borrowed, usually from a broker, is called buying on margin. Because you have a lower original investment on the amount of stock you purchase, you'll get more of a return when you buy on margin than if you bought the stock outright. On the other hand, if the price of the stock decreases, your losses will increase, which makes margin buying considerably riskier. The investor should have a stop-loss order in place, in the event of a market reversal. This will limit potential losses when buying stock on margin. Ten percent of total account value is the limit that should be placed on the amount of margin.

An investor must choose a fixed dollar amount to invest regularly to successfully complete dollar cost averaging. For example, the buyer may invest in mutual fund shares every month. If that fund plummets in price through the market, that investor will be given more shares for his monetary expenditure. So, as the prices rises, the fixed amount price will allow the purchase of fewer shares.