The stock market is like a gregarious, uncertain beast - you can never predict which turn it's going to take or which direction it is headed for. Having said that, let us also admit that the stock market is one of the most exciting markets in the world that can make your fortunes if you play it right. And, if you want to play the stock market right, you have to figure out how it ticks. Here then are basics and fundamentals of a stock market that will clue you on:
My experience as an OTC market maker gives me a unique perspective on these types of stock market trading and stock market crashes. Imagine being a professional stock trader, a market maker. You have a certain amount of capital. If you do are loaded up with inventory and do not anticipate a stock market crash like the one we just had, you are doomed. If you have, say, $1 million in inventory, to pick a round number, and you are 80% long, in a 15% market decline, you lose on average $120,000 in a matter of weeks. If you had to repay your losses, you were not a happy stock trading professional.
Many individuals and entities trade in the stock market. Small investors, day traders who square up their transactions on the same day, investment/financial companies, banks, hedge funds, individuals with a high net worth, institutions, mutual funds - all are involved in stock market trading. These individuals and entities place their buy or sell orders through a market intermediary, called the stockbroker. Majority of the transactions are routed through a network of computers that execute orders in a matter of seconds.
Traders have multiple tools to use when it comes to financial market analysis. They can use well-developed patterns, or use what is called support and resistance. Support is when they track the level from which lower stock prices are predicted to go up from and resistance is the height the stock is predicted to get to before it may go down in price again. The theory is that most stocks can be predicted to rise or fall after they get to a support or resistance amount. Some of the other methods of stock market analysis include:
The stock market index is a value, determined by the stock exchange authorities, that reflects the market's movement. This value is based on a handful of high-volume and reputed stocks - these are weighed and a number is given to them. This number or value fluctuates according to the movement in the prices of these stocks and this is what indices such as the Dow Jones, the NASDAQ, the S & P (Standard & Poor) are all about.
One more observation. If you can figure this out, let me know. The best stocks I have found have been in bear markets. True, you could buy just about anything in a bull market and be up, but the highest percentage gains in my book have been in bad markets. Not terrible markets, bad markets. I have never figured out why.
My experience as an OTC market maker gives me a unique perspective on these types of stock market trading and stock market crashes. Imagine being a professional stock trader, a market maker. You have a certain amount of capital. If you do are loaded up with inventory and do not anticipate a stock market crash like the one we just had, you are doomed. If you have, say, $1 million in inventory, to pick a round number, and you are 80% long, in a 15% market decline, you lose on average $120,000 in a matter of weeks. If you had to repay your losses, you were not a happy stock trading professional.
Many individuals and entities trade in the stock market. Small investors, day traders who square up their transactions on the same day, investment/financial companies, banks, hedge funds, individuals with a high net worth, institutions, mutual funds - all are involved in stock market trading. These individuals and entities place their buy or sell orders through a market intermediary, called the stockbroker. Majority of the transactions are routed through a network of computers that execute orders in a matter of seconds.
Traders have multiple tools to use when it comes to financial market analysis. They can use well-developed patterns, or use what is called support and resistance. Support is when they track the level from which lower stock prices are predicted to go up from and resistance is the height the stock is predicted to get to before it may go down in price again. The theory is that most stocks can be predicted to rise or fall after they get to a support or resistance amount. Some of the other methods of stock market analysis include:
The stock market index is a value, determined by the stock exchange authorities, that reflects the market's movement. This value is based on a handful of high-volume and reputed stocks - these are weighed and a number is given to them. This number or value fluctuates according to the movement in the prices of these stocks and this is what indices such as the Dow Jones, the NASDAQ, the S & P (Standard & Poor) are all about.
One more observation. If you can figure this out, let me know. The best stocks I have found have been in bear markets. True, you could buy just about anything in a bull market and be up, but the highest percentage gains in my book have been in bad markets. Not terrible markets, bad markets. I have never figured out why.
About the Author:
Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: Things To Consider Before Getting A Hard Bank You have full permission to reprint this article provided this box is kept unchanged.
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