This blog post may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services.
Due to layoffs, shortened work hours, and rises in the cost of living, many more individuals have turned to day trading. There were media reports during 2020 about how inexperienced traders were seeking to create a side income or investing savings with the hope of turning quick profits.
This has led to an estimated 450,000 people day trading each year in the states. Although completely accurate numbers are hard to come by, it is estimated that over 90% of day traders are male now.
And more than half of them are willing to risk amounts of over $20,000 daily. With rank amateurs using trading apps and almost no knowledge of the market, it is perhaps not a shock to hear that the majority lose money.
Very few will consistently make profits throughout their career, and everyone experiences a loss at some point if they trade often. But, are there ways to increase profitability? What about the many online research tools for traders, will these apps help, or are they worthless?
- Is research vital when investing?
- Can online research tools help you invest more wisely?
- What should you look for when researching investments?
- How do you choose the best investment research tools?
Is research vital when investing?
There is a potential risk when making any investment, even with the most solid ones. Therefore, some research is essential to assess how much risk you are taking before you invest.
The reason you need to involve yourself in some research is to get an understanding of the company you are putting your money into. By seeing the growth potential, and looking at past performance you may be able to ascertain how likely you will see a return on your trade.
Now, it is very common for this research to be carried out through web apps. A quick scan of this Seeking Alpha review reveals that this tool gives access to investment advice, news, and stock analysis. This makes it easier to gather data surrounding a company before starting to buy stocks.
Can online research tools help you invest more wisely?
Gaining knowledge about companies you wish to invest in can be extremely time-consuming. Another problem is that the data you collect can become outdated very quickly. What may be seen as a solid investment can collapse dramatically upon unfavorable news releases. Word of management concerns, or faulty products, can see stock prices tumble.
One of the steps to being a successful day trader is to make use of all available tools. Mobile trading platforms, news feeds, and stock screeners are valuable tools, and in the case of trading platforms, simply essential.
In May last year, one report suggested that up to 43% of traders were too nervous to consider investing at that time. Rising inflation and interest rates put fear into investors, and this was reflected in trading habits. Online tools for research can help to some degree by establishing patterns, and showing possible future performance.
In a volatile market, and a high-inflation economy, it can be very hard to predict how companies will perform at times. Any resource that traders can use may be of help, especially those that give better insights and knowledge about businesses.
What should you look for when researching investments?
Carrying out research is a basic requirement when getting into trading. Day traders are more likely to make profits when they have some knowledge about the company they are investing in. Long-term investors can take longer to look deep into company history and study past and potential future performance.
However, research is pointless if you don’t know what you should be looking for. Here are some aspects of investment research that you can perform with online tools, or through your studies.
Historical dividend data
This will have little interest to day traders, but for those who are looking to invest for the long term, then dividend history is worth studying.
If you are hoping to hold on to your stocks for a while, then you will be interested in seeing what dividends you are likely to receive from them. This can be a significant part of any ROI you eventually see depending on the number of stocks you purchase.
Research the fundamentals
You will need to research stock fundamentals before investing. These are critical fundamentals for businesses and take into account specific areas such as liquidity and debt.
Stock prices can be heavily affected by certain things such as inflation, and natural disasters. But, announcements about cash flow problems, or profits, can impact share values too. Researching the fundamentals will help you to look deeper into the data surrounding important areas in the company. Some online tools can help to pull up the necessary data.
Previous stock performance
AI is being more frequently used in the trading world, and bots are popular with some investors today. AI may one day replace traders, but for now, you can make use of it for data analysis.
Historical data is significant as it can help to picture future performance as well. Yet, comparing stock performance to rivals is also an important part of investment research.
Online research tools can gather data and present it so that you can easily compare the company you are interested in with its rivals’ current and past stock performance.
This refers to who owns a company’s shares. A diversified shareholding pattern is often desirable. Shareholding patterns can be found through data when researching a company and will show the level of promoter shareholders, individuals, and other entities such as government shareholders.
This data can help an investor by giving some knowledge into the shareholding structure, which can be an indicator of how financially healthy a company is.
The fundamental research you should do before investing involves looking at return on assets, net profit margin, price-to-earnings ratio, debt-to-equity ratio, and price-to-book value ratio. You may want to look at the company size, and what potential growth there is.
But, you also need to put into place an investment strategy, and set your time horizon. Setting a time to hit your goals is as essential as carrying out research. Does your analysis show long-term growth, or is there potential for making a good ROI in the short term?
How do you choose the best investment research tools?
If you are new to investing then the first you heard of apps and online trading tools may have been when the Robinhood/Gamestop trading story blew up in the news. However, there are dozens of tools available to assist traders, and these are accessed through the net on PC or mobile devices.
Due to the sheer volume of these tools, it can be hard to sift through them to find the most useful apps. You can gain some insight if you read reviews on trading websites and online resources. There are plenty of trading blogs that actively seek to give advice and help investors make better decisions.
Ideally, some form of a free trial will be available to you before you subscribe to any service. But, if this isn’t possible, then carry out research yourself, and form a picture through other people’s advice in online reviews.
If no research is done on investments then you are likely to be trusting sheer luck to make you a profit. Online tools can be used to research not only stock fundamentals but also to analyze and compare data against rival companies.
The more knowledge you have about a company, and the deeper insights you gain, the more chance you have of making better investments.
Become an Insider
Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned and has not been endorsed by any of these entities. Opinions expressed here are author's alone
The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur.