Since the beginning of the pandemic, there have been more and more retail investors that are deciding to fight inflation and grow their savings. However, there’s a lot to talk cover here, because there are many different types of investing strategies, product, and markets, along with different trader personalities and risk profiles. So, to narrow it down, here’s the rough order in which you should go about investing in stocks.


Deciding type of investor you are

If there were one clear winning investing strategy, we would all just follow that. The issue is, there are different philosophies, risk profiles, and personalities that underpin our decision behind what kind of investor we are.

Firstly, you want to decide if you want to trade or invest. Investing is long-term, in which you chose firms that you think will gain in value over time, grow as a business, heave healthy financials, and is potentially underpriced currently.

Being a trader on the other hand will require a lot more activity and is centered around short-term gains. Traders are less concerned with what the company is worth and are more focused on its price patterns, as they speculate and predict near-future prices.

Investing is suited to people who believe more in the efficient market hypothesis, where prices are always fairly accurate in the short-term, but investors can still capture the average market return growth over time. After all, the S&P 500 has grown well over 10% a year on average in the past 100 years.

Trading is suited to personalities that are interested in gaining a clear advantage over others. Either knowing something no one else does, spotting something, or devising ones own trading bot. These investors can win or lose a lot in a short amount of time, so it takes some nerve of steel.

Choosing the right broker

The best online brokers in 2021 are clearly the stand out options. However, knowing which one to opt for will depend on a few things. Firstly, the decision of what kind of investor you are should already have been made. It’s vitally important that you know whether you want to use technical analysis or fundamental analysis because different firms will focus on different resources and tools.

It’s also important to know what products and markets you’re interested in investing in. Whilst some brokers like eToro have many different markets, they still usually specialise in one thing or another. For example, there are many CFD-only brokers out there. These are only suitable for traders and not for investors due to the high overnight costs.

Once you have decided on what markets you want to trade within, this will be easier to whittle down the shortlist of brokers. Presuming they have enough research capabilities and tools that are suitable for your trading strategy, it’s then wise to compare costs. 0% commission ETF trading for example is great for long-term investors, whilst traders will be more focused on having tiger spreads.

Testing your strategy

Finally, it’s time to put your strategy to the test - particularly in the context of your new broker. This can be done in several ways, but it’s a good start if you have the option to open a demo account. This way, you can invest fake money with no risk - just be sure to act in the same way as if it was real money.

Deciding on a strategy isn’t easy, and it can’t be covered in a short article. For investors, you will need to read up about how markets work, asset allocation, fundamental analysis, diversification, and different investing approaches. For traders, it would be wise to learn technical analysis, charting techniques and indicators, and different approaches, such as HFT, swing trading, scalping, and day trading.

Regardless of whether you’re going to be trading or investing, one thing is extremely important: Have a strategy and stick to it regardless of emotion. Human psychology is your worst enemy when it comes to money. We fall victim to mental accounting, heuristics, confirmation bias, survival bias, and many other psychological defects.

So, if you have a long-term plan, make sure that short-term crashes do not cause you to panic sell. If you need to sell in certain circumstances like this, then plan for it, and have a stop loss that will do the work for you. The same goes for traders, although, they can use algorithmic trading as a means to mitigate emotion.

Beyond testing your strategy with a demo account, you can also backtest the entire thing through a simulation on some brokers, to see how the strategy would have worked historically. Given your strategy enough time to see if it’s working, as opposed to throwing it out after just a week-long attempt. Frequent amendments and tweaks are common, but for long-term investors, it’s easier to stick to one solid plan.

This is general information. Seek expert advice from a licensed professional before making financial decisions.