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.
On the other hand, if you were net short 50%, you made $75,000 in only a few weeks. As you can see, being a market maker you will either learn to anticipate and profit from the crowd, or you will find yourself serving chopped liver as a clerk in a Wall Street delicatessen in short order. Getting carried away with the crowd is a sure ticket to the deli. I didn't average 300% per year gain on my trading positions by being slow to learn. If I was wrong, the market kicked my ass hard. So you learn fast to develop the right reflexes. Now here comes the tricky part for any stock market trading as a market maker - when to load up, when is the bottom, when to dump, when is the top?
You do not want to get in front of the moving train and buy on the way down. You do not want to be the pioneer when the stock market crash seems to halt, only to find out that the market has more to move down. The way to do that is simply to anticipate. You have to be short before the decline, long before the rise. The only way you can execute your stock trading strategy is to be able to brush aside all the crowd mentality, all the herd instinct. If you see everyone bullish, you have to be bearish and looking to lighten up and go short. If you see everyone selling in a stock market crash, you have to start to look for the buy point. It is that ability to maintain a clear head and observe others instead of getting carried away by them or with them that leads to profit.
When it comes to tracking stocks one of the methods is through charts and patterns. A system of bar charts is normally used that represent periods of time (like daily, weekly, etc). The top of this chart for stock market analysis would list the high price while the smaller bar chart to the right lists the opening and the other one lists the closing prices. Another chart sometimes used is called a candlestick chart. It uses a slightly different system of markings to show the highs and lows and prices of the stock it is following. It also uses a color system, with red or black if the stock's closing cost was lower than the one prior to this one or white and green if it was more.
There are two methods that can influence investment decisions in a stock market: (i) Fundamental analysis is a method, wherein the companies past and current performance is analyzed along with the factors that will affect its future profitability. Medium-long term investors invest on the basis of fundamental analysis. (ii) Technical analysis is another method that studies the correlation of price and volumes over a span of time and then gives a buy or a sell signal on the basis of this correlation. There, those were basics of the stock market. If you want to trade successfully, then you have to understand how the stock market works, because there is no other way, no other shortcut. Happy trading.
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.
On the other hand, if you were net short 50%, you made $75,000 in only a few weeks. As you can see, being a market maker you will either learn to anticipate and profit from the crowd, or you will find yourself serving chopped liver as a clerk in a Wall Street delicatessen in short order. Getting carried away with the crowd is a sure ticket to the deli. I didn't average 300% per year gain on my trading positions by being slow to learn. If I was wrong, the market kicked my ass hard. So you learn fast to develop the right reflexes. Now here comes the tricky part for any stock market trading as a market maker - when to load up, when is the bottom, when to dump, when is the top?
You do not want to get in front of the moving train and buy on the way down. You do not want to be the pioneer when the stock market crash seems to halt, only to find out that the market has more to move down. The way to do that is simply to anticipate. You have to be short before the decline, long before the rise. The only way you can execute your stock trading strategy is to be able to brush aside all the crowd mentality, all the herd instinct. If you see everyone bullish, you have to be bearish and looking to lighten up and go short. If you see everyone selling in a stock market crash, you have to start to look for the buy point. It is that ability to maintain a clear head and observe others instead of getting carried away by them or with them that leads to profit.
When it comes to tracking stocks one of the methods is through charts and patterns. A system of bar charts is normally used that represent periods of time (like daily, weekly, etc). The top of this chart for stock market analysis would list the high price while the smaller bar chart to the right lists the opening and the other one lists the closing prices. Another chart sometimes used is called a candlestick chart. It uses a slightly different system of markings to show the highs and lows and prices of the stock it is following. It also uses a color system, with red or black if the stock's closing cost was lower than the one prior to this one or white and green if it was more.
There are two methods that can influence investment decisions in a stock market: (i) Fundamental analysis is a method, wherein the companies past and current performance is analyzed along with the factors that will affect its future profitability. Medium-long term investors invest on the basis of fundamental analysis. (ii) Technical analysis is another method that studies the correlation of price and volumes over a span of time and then gives a buy or a sell signal on the basis of this correlation. There, those were basics of the stock market. If you want to trade successfully, then you have to understand how the stock market works, because there is no other way, no other shortcut. Happy trading.
About the Author:
Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: There May Be Plenty Bonuses Awaiting You Should You Consider A Gold IRA Retirement Plan You have full permission to reprint this article provided this box is kept unchanged.
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