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Make Money In The Stock Market Using The Average Principle

Aug 2, 2008
Stock markets they say can make you a millionaire but the fact remains that stock market is also the one where you can lose your shirt in one day. The fascination for the stock market comes from the fact that making money seems easy. Easy it is should you follow a few things. The main thing is about focus and discipline.

There are several ways to make money on the exchanges. Different people have different ways to approach the market. Some people go for long term strategy and some people go for short term strategy. Then there is the middle path which falls in between short term and long term.

This method is known as the averaging principle and you can make money even in short term and long term. This is used by essentially all the people at all time in the stock market.

In this method you need to basically pick a stock which is fundamentally strong and then start buying the stock. You need not worry about the price of the stock at any given time. The next thing that you do is that you buy the stock at every significant slide of the stock. That means that when the price is going up then you need not buy the stock but the price is going down then you start buying the stock.

Basically what you are doing is that you trying top average out the price of your holdings.
Also this means that you are bullish on the long term prospects of the stock but you view the downhill slide of the stock as a temporary glitch.

Some people view this as a contrarian strategy because of the fact that you are not buying when the price seems to be going up but only when it is going down. Once your average cost is down then you can think of time when you want to sell the stock. Take an intelligent decision as to when you want to sell the stock based on the return you are getting.

Alternatively you can also use the systematic investment plan option of the brokerage firms and specify the day and time each week when you want to buy a particular stock irrespective of the price.

Stock markets are not a guaranteed money making opportunity so there may be times when this strategy may fail. So be prepared for the worst.
About the Author
Stock market beginners provides an excellent place to make money. The author suggests stock market for beginners lessons as a help to people looking to have stocks as money making vehicle.
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