Leveraging a stocks tracker can help you in improving your performance in the financial markets. However, there are downsides when it comes to using trackers. To understand how they add value and where you should be careful about, this article will show you the common pitfalls and benefits that a stock tracker can bring.
Be careful with market performance
Trackers not only show you the stocks that you own but also give you a glimpse of what is happening in the market. You can browse through indices, stock markets, and bonds to observe market movements. The danger here is judging stocks based on their performance.
For example, you might come across a stock with no intrinsic value that is in high demand. The stock is growing by 5% a day over a week. Should you jump the bandwagon? Chances are high you can get a nice return when surfing the waves, at least for a few days. This can be a typical signal of a false buy signal or a meme stock. Research the stock to understand its true potential before purchasing it.
Group stocks based on their purpose
There are different types of stocks to consider when investing, as is shown in the (non-exhaustive) table below. Investors should approach these stocks differently, as they should be traded with different horizons and risk appetites. Stocks tracker applications allow you to structure your portfolio in groups to track them separately. This helps to objectively track your portfolio, as the volatility differs per stock type:
- Value stocks – Stocks that are typically undervalued based on their assets and market potential
- Growth stocks – Stocks that are active in a growth market or challenge an existing product or service
- Meme stocks – Stocks that are hyped up by the internet (high demand) but have little to no intrinsic value
Create a trading plan
The possibility to create separate portfolios with stocks also helps to reflect your trading plan. This step is often forgotten by new investors: a plan that determines your strategy for the foreseeable future. For example, you could allocate part of your investments to a bucket that will grow for 20 years, while you also invest in growth stocks for the short term. By describing this in a strategy, you not only define but challenge yourself on the very foundation of why you want to invest.
Notifications that matter to you
Another benefit of using a stocks tracker over a spreadsheet is the ability to notify you. This means you do not have to monitor the markets: the application will do it for you. Based on parameters (e.g. % of gains and losses) the app notifies the user. Next to that, applications such as Delta use algorithms to bring you the most important industry and company news relevant to your portfolio.