You’ve gotten comfortable with online investing. You’ve built a profitable, diversified portfolio. You’ve even taken a few risks—and they’ve paid off. Now what? For the sophisticated self-directed investor, going beyond the basics means moving on to more advanced strategies that can help you refine your trading approach and add to your growing toolkit.
Fortunately, BMO InvestorLine offers a wealth of free resources for anyone looking to take their investing skills to even greater heights, including webinars, videos, podcasts and more. We’ve put together a few tips to help you get started—because the wisest investors know there’s always more to learn.
1. Learn different ways of analyzing trades
Contrary to what you might read on social media, following the crowd isn’t a viable long-term investing strategy. If you want to become a more educated trader, it’s crucial to understand how to evaluate and analyze trades, so you can make more informed decisions. While there are a number of different ways to do this, stock analysis typically breaks down into two categories: technical and fundamental analysis. But what’s the difference?
Technical analysis involves studying chart patterns, indicators and price movements to spot trends and potential entry and exit points in the market. If you go this route, you’ll want to get comfortable with tools like Moving Averages, Relative Strength Index (RSI) and Bollinger Bands, which help traders gauge market momentum and volatility. Familiarity with common chart patterns like “head and shoulders” and support and resistance levels can also give possible clues as to what an asset might do next.
Fundamental analysis, meanwhile, moves away from charts and instead attempts to evaluate a company’s intrinsic value by examining financial statements, ratios and economic indicators. This approach looks at earnings, debt levels, general market conditions and more to ballpark an asset’s long-term potential.
Both approaches have their time and place, and benefits. The key is learning to get comfortable with both, so you can use these tools to inform your trades and make investing decisions based on analysis you can back up, rather than blindly following someone else’s recommendations—or trading based on emotion, which can lead to rash decisions.
2. Explore your options
Looking to take your investing to the next level? Options trading provides flexibility that other trading methods don’t. Whether you’re interested in buying calls or puts or exploring more advanced strategies like covered calls or spreads, options trading allows you to manage risk and take advantage of market volatility in ways traditional stock trading might not.
For example, a covered call involves holding a long position in a stock while simultaneously selling a call option on the same stock. This strategy generates income from the option premium, which can help offset potential losses if the stock price declines slightly. However, if the stock price rises significantly, the trader might have to sell the stock at the strike price, capping the possible profit.
Spreads involve buying one option and selling another of the same class (call or put), but with different strike prices or expiration dates. For example, a bull call spread occurs when you buy a call option at a lower strike price and sell another at a higher strike price. This limits both potential gains and losses, making it a safer bet in moderately bullish markets.
Sound complicated? It certainly can be… Fortunately, the BMO Investment Learning Centre has a number of free resources dedicated to options education, including an Introductory Options Course for those wanting to learn at their own pace, as well as an Options Trading Beginner’s Guide to help teach you the fundamentals without overwhelming you with jargon. Want to go deeper? BMO InvestorLine also offers webinars and videos on more advanced topics like Spreads, Straddles, Index Options and options Greeks, so you can get comfortable with the ins and outs of different options strategies before putting them to use.
3. Maximize your buying power with margin trading
Comfortable with taking on higher risk for a bigger reward? Margin trading allows you to borrow funds against the value of your investments in order to increase your purchasing power and enable you to take larger positions in the market. Or, in other words, you’re borrowing money from your brokerage to invest. As a result, this strategy can amplify your potential returns by allowing you to control more assets with less of your own capital. That said, it also increases risk, since potential losses are magnified in the same way as gains.
For example, suppose you invest $50,000 of your own money and borrow another $50,000 on margin, giving you a total of $100,000 to invest in a stock. If the stock appreciates by 10%, the value of your investment increases to $110,000. After repaying the $50,000 margin loan, you’re left with $60,000, resulting in a $10,000 profit, or a 20% return on your initial $50,000 investment. (Worth noting: you’ll also have to factor in trading commissions, plus interest on your borrowed funds, and your eventual gains will be reduced accordingly.)
On the other hand, if the stock decreases by 10%, your investment value drops to $90,000. After repaying the margin loan, you’re left with $40,000, leading to a $10,000 loss, or a 20% loss on your original investment (again, not counting commissions and interest). Margin trading’s ability to significantly magnify potential gains and losses makes it a strategy that’s best-geared towards more experienced investors who are familiar and comfortable with balancing risk vs. reward.
Given this, it’s important to educate yourself on the benefits, and risks, of margin trading before deciding whether Margin Accounts make sense for your personal investing goals. BMO InvestorLine offers a handy guide to Understanding Margin Trading, which outlines important concepts like margin calls, as well as how margin trading can help experienced investors unlock short selling and other advanced trading strategies.
4. Use tax loss harvesting to your advantage
“Buy and hold” is one common strategy investors use to help mitigate risk, but more advanced investing also involves knowing when to cut your losses—and using that to your advantage via tax loss harvesting. This involves selling an investment at a loss to offset capital gains from other investments in order to reduce your overall tax liability.
For example, if you have a stock with a $3,000 loss and another with a $5,000 gain, selling the losing stock can offset the gain, reducing your taxable amount to $2,000. After selling, you can reinvest the proceeds into a similar asset to maintain your portfolio’s strategy, all while benefiting from the tax savings. The best time to implement this strategy is at the end of the year when you’re looking for ways to optimize your portfolio’s tax efficiency and have a better sense of your upcoming tax bill.
For more information on how tax loss harvesting can potentially enhance your portfolio’s after-tax returns, check out BMO InvestorLine’s informative article on the subject.
5. There’s always more to learn
Whether you’ve been investing for 10 months or 10 years, there’s always more you can learn to help make yourself a better-informed investor. Committing to your trading education by learning more about these, and other, advanced trading strategies can help you refine your portfolio and open yourself up to opportunities you may have been missing.
That’s not to say you’ll always make the right decisions—after all, all investing involves risk, and there’s no such thing as a “sure thing.” That said, increasing your investing skills can help you become a more confident investor by giving you a strong foundation you can use to inform future trades.
BMO InvestorLine is committed to helping investors further their trading education, which is why they’ve put together a free, accessible Learning Centre to serve as a valuable resource as you continue your investing journey. However you learn best, BMO InvestorLine has what you need to take your trading to the next level via online courses, insightful articles and videos, educational webinars and more.
Looking to go beyond the basics to become a more advanced trader? BMO InvestorLine has what you need to take your trading to the next level. Visit BMO’s Investment Learning Centre to discover a wealth of free educational resources, including webinars, videos, podcasts and more.
This article is prepared as a general source of information and is not intended to provide legal, investment, accounting or tax advice, and should not be relied upon in that regard. If legal or investment advice or other professional assistance is needed, the services of a competent professional should be obtained. Information contained in this article does not constitute and shall not be deemed to constitute advice, an offer to sell/ purchase or as an invitation or solicitation to do so for any entity. The content of this article is based on sources believed to be reliable, but its accuracy cannot be guaranteed. BMO InvestorLine Inc. and its affiliates, sponsors and employees do not accept responsibility for the content and makes no representation as to the accuracy, completeness or reliability of the content and hereby disclaims any liability with regards to the same. Any strategies discussed, including examples using actual securities, quotes and price data, are strictly for illustrative and educational purposes only and are subject to change without notice. BMO InvestorLine Inc. is not responsible for the information provided and disclaims all liability with regards to the same.
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