The well-known Buy & Hold trading strategy is that by purchasing shares, the investor holds them for a long time period, counting on a significant increase in price. The size of the expected profit for such a trading strategy is usually hundreds of percent. However, this method of trading also has a lot of chances to lose the money invested.
How to start a buy and hold trading
In order for this trading strategy to be as effective as possible, you need to have free money that you will not need in the next few years.
You must be a very calm and judicious person so as not to react to the current price change. In this strategy, one of the main psychological factors is the investor's composure and stress resistance.
Throughout the course of trading in the market, significant events can occur that will greatly affect prices. The main thing at such moments is not to succumb to general panic, but to systematically go towards the intended goal. And oh, how difficult it is. Few people can remain calm in critical situations.
In the "buy and hold" trading strategy, as well as in all the others, you only need to use your own money. No loans or credits.
Pros of a buy and hold strategy
The significant advantages of this trading strategy include the simplicity of the transaction. You don't need to have any special knowledge and skills here.
You have plenty of free time. You do not need to constantly monitor changing quotes.
On long time frames, the buy and hold trading strategy actually yields very good profits.
Cons of the "buy and hold" strategy
The disadvantages of this trading strategy include the fact that you need to have some free capital, which you are not going to use in the foreseeable future. Not every market participant can afford this kind of investment.
The complete lack of risk control is also a significant disadvantage of this trading strategy. You risk losing your investment.
How to try to minimize risks
If you try to slightly adjust this strategy and try to customize it for yourself, then you can reduce trading risks to a minimum.
For example, you can set a certain level for yourself, and if the stock price drops to it, then close the loss. Such conduct of a trade transaction will help insure your capital against large losses, which may at some point become simply critical.
You also need to thoroughly study the company where you are going to invest your money. The company's shares must have upside potential, or in other words, "be undervalued."
However, in order to customize the Buy & Hold strategy for yourself, you need to have certain knowledge and experience.
