The concept of buying and selling stock in increments.
You should practice trading in increments by taking advantage of short term fluctuation in the stock price. The idea behind this method is gradually investing portions of your money into a stock that is influenced by the volatility of the market. This technique is used by many professional traders in order to build customer portfolios.
So how does it work.
First you will need to invest in a great company that you believe will eventually go up on a long term basis, regardless of market fluctuation.
So let’s say you want to own 300 shares of this company. And let’s say the shares are worth 100$ each. The idea is to buy 100 shares three times over a period of several weeks or months. Once you have 300 shares, you wait until the shares of the company moves up 103. Then you should sell 50 shares, just to make a bit of profit, then, if it continues to 106 sell another 50 share and do the same thing at 109. Once it reaches 109, you wait for something that will make the stock drop, as long as it doesn’t damage the company prospects. In most cases the stock gets hammered by all sort of factors that have nothing to do with the fundamentals of the company. So when the stock drops at 103 you buy 50 shares, and the same thing at 100 and so on.
The golden rule about buying and selling incrementally, is to avoid putting yourself in a position where you have too much money invested in the stock in case the stocks get crushed or too little to take advantage when stock starts peaking. Do your homework and take notes, do a lot of research about the company, This is the only really key component for making a good investment. If you can’t figure out how much money you should invest in order to be in a good position, you should not invest.
Trading by increments is an important step toward moving to next level, which involves options.
Using options is a whole new ball game and requires a lot of time and homework. Options are not for beginners and before venturing in the practice of options you should have a good notion of how to trade and invest your money in the stock market.
Buying and Selling incrementally will effectively generate a lot of small gains that will add up overtime.