The stock market can be a very scary and intimidating place for those that are new to trading or even thinking about trading. There are a lot of things that have to be considered when deciding which stocks to buy which ones to sell and when to do those things. People go to school for years and have a lot of levels to progress through before they can reach the status of senior trader. Usually beginning as a trade analyst and moving up the ranks with guts and knowledge. I hope that this article will help in some small way to help you at least begin to understand this complicated system.
Why Stocks Rise and Fall: an overview
Stocks rise and stocks fall much like the sun rises and sets everyday. However, unlike the sun stocks rise and fall for a variety of reasons. Those reasons include, what is the media saying; are there rumors of an impending merger or recall or something along these lines that is being reported and possibly inciting a sense of fear for any possible future or current investors with a certain company? What are the big names in the investment niche saying, are they saying trends are pointing towards a plummet of a certain stock, in this case you have to wonder if they are speaking fact or rumor, and where exactly is their information coming from.
There is also the factors of world events, are there social or substantial political events occurring in a certain region or country that could affect their businesses or products? What about their currencies? Are there manufacturing companies under fire literally or figuratively and what kind of impact will that have?
Is the particular company somewhat new, is their product or business constant? What is the supply and demand of a particular product? Is it just a trend or is it steady and rising? These are all factors that must be considered in deciding which stocks to invest in, and predicting what will happen to them in the trading context.
What to Consider when Investing
There are really three things you must take into consideration when investing in a particular stock. These are; is the stock under-valued, over-valued, or fair-valued. In other words is it selling for more or less than it’s worth or is it pretty even with what it’s worth? This is usually determined by taking a company’s listed assets and subtracting its depreciation and liability. It can also be determined by looking at the net value of the company’s predicted future earnings.
Another thing you must consider and probably the hardest thing is, is there now or is there the possibility of an event or situation that will cause that stock’s value to fall. This is where the things I mentioned above come into play. In order to even have a prayer in predicting this you have to study the trends in the market and the world on a constant basis.
The last thing you have to consider is the human factor. This is in some ways the easiest and the most difficult thing you will have to do. Will what is going on in the world cause a panic and cause the buy/sell ratio to change? Will this change be for good or bad? This is the easiest part because you are a human but it is the hardest because human behavior is sometimes very hard to predict.
A Few Basics for Beginners
Some key points that will help you out as you begin is know or learn how to obtain and read basic quotes using a ticker symbol. This is pretty significant as you have to understand what you are buying/selling at a quick glance. You need to keep tabs on the major indices, Nasdaq, S & P 500, etc. You have to know the trends before you buy or sell.
In doing these things you need to research the market and you need to know the most reliable and reputable resources for that research. You wouldn’t just walk up to someone on the corner and ask for their opinion and then trade based on that alone would you? You also need to understand the terminology of long and short and if you don’t know it you need to learn it before you even begin. And last but not least you need to know how dividends work, in other words how and when you will see your money or returns.
All in all if you know what you are doing and you are willing to take the risk, the stock market is a great option for the long term financial goals you may be seeking. As long as you know there is risk involved and you understand the level of that risk you can make a good, well informed decision, that could very well be extremely beneficial to you in the end.