How To Choose A Sector For Your Very First Trade

How to Choose a Sector for Your Very First Trade

I’ll be right up front from the beginning.

If you’ve known me for a while, you already know that I don’t trade market sectors, but a specific type of stocks called penny stocks.

But if you understand well how investment sectors function, you can have an advantage over investors who just bet on the direction of the market without having the most minimal structure from which to analyze investment opportunities.

Fortunately, investment sectors are here to provide part of that structure. They can help you understand how the stock market is organized, how groups of similar companies perform, and how they move and react to news, events, and the economy.

That information is useful to help you spot potentially good investment opportunities that can grow your investment account. In other words, keep reading this post.

Here, I’ll give you a high-level view of what these investment sectors are, their characteristics, and more important, how you can use this knowledge to your advantage.

Sectors are a big deal, and you need to know about them.

So stay with me for a few minutes and let’s take a look at this topic. Some of it’s kind of dry, but just absorb it and let’s keep moving.

What Are Investment Sectors?

Investment sectors are major categories of publicly-traded companies grouped together based on their main business activity. They are also known as industries because they represent companies in a similar or related type of business activity.

For example, companies like Apple and Microsoft belong to the technology sector, while companies like Exxon Mobil and Chevron fall under the energy sector.

But, why would the market want to group companies this way? Well, it makes the analysis of the market far easier.

As companies in the same sector tend to perform the same way and conduct businesses with similar risks, they can be analyzed and compared in the same terms.

So, to provide a structure to categorize the market, a couple of global companies — MSCI and FTSE Russell — have come up with classification systems to organize the market in major categories or sectors.

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