Trading Basics

How do stock market traders make money? Whether one trades upstairs for a banking/broking operation or downstairs on the exchange floor, every trader has the same financial goal: To make money every day. But how can this be if, in fact, the markets are random and the future is unknowable and if even the most sophisticated option traders are at the mercy of an unpredictable future volatility? There are only two ways to make money in any business. You make it from the other professionals in the market or you make it from your customers. While there are many, many variations on how it is done, there are only those two categories to choose from. The vast majority of traders and ... [read full story]

Most bull (up) market cycles last two to four years and are followed by a recession or bear (down) market and eventually another bull market in common stocks. In the beginning phase of a new bull market, growth stocks are usually the first sector to lead the market and make new price highs. Heavy basic industry groups such as steel, chemical, paper, rubber, and machinery are commonly more laggard followers. Young growth stocks will usually dominate for at least two bull market cycles. Then the emphasis may change for the next cycle, or a short period, to turnaround or cyclical stocks or newly improved sectors of the market, such as consumer growth stocks, over-the-counter growth issues, or defense stocks that sat on the sidelines ... [read full story]

The basis of the argument that dividends don't matter is simple. The financial theory, referred to as the Miller-Modigliani Theorem, stats that the market value of a firm is determined by its earning power and the risk of its underlying assets, and is independent of the way it chooses to finance its investments or distribute dividends. Remember, a firm can choose between three methods of financing: 1. Issuing shares 2. Borrowing 3. Spending profits (as opposed to dispersing them to shareholders in dividends) The theorem gets much more complicated, but the basic idea is that, under certain assumptions, it makes no difference whether a firm finances itself with debt or equity. ... [read full story]

How do you see the world? Do you consider yourself an investor or a trader? Most people think of themselves as investors. However, if you knew that big winners in the markets call themselves traders, wouldn't you want to know why? Simply put, they don't invest, they trade. Investors put their money, or capital, into a market, like stocks or real estate, under the assumption  that the value of the entity they invest in will increase over time (see What is Investing?). As the value increases, so does the person's "investment." Investors typically do not have a plan for when their investment value decreases. They hold on to their investment, hoping that the value will reverse itself and ... [read full story]

If you have more than one investment, you likely want to monitor and compare their performances to the market and to similar investments. Here are a few examples of the information and the software you need to accomplish this objective: Market-monitoring tools send alerts that you determine. For example, if your stock increases by 25 percent, you may want to consider selling it. You can set up an alert that sends you an e-mail message notifying you that your stock has reached this target. The Internet provides many portfolio management programs that let you know when your investments are in the news. Online portfolio ... [read full story]

Deciding on the proper time to purchase a security that you would like to add to your holdings can be a daunting task. If the price drops immediately after you buy, it may seem as if you missed out on a better buying opportunity. If the price jumps right before you make your move, you may feel as if you paid too much. As it turns out, you should not let these small fluctuations influence your decision too much. As long as the fundamentals that led you to decide on the purchase have not changed, a few points in either direction should not have a large impact on the long-term value of your investment. The proper time to buy a security is quite simply ... [read full story]

The process of analyzing investment prospects includes examining groups of investments or individual securities. For this task, you need information to forecast the timing and amount of future cash flows of investment candidates. That is, the price you pay today is based on the future income of the asset. Figuring out what the asset will be worth in the future requires some homework, analysis, and luck. Here are a few examples of online sources for this type of information: Company profiles and annual reports often forecast the company’s future revenues and earnings. Make sure you research a company in our Stock Profiles. Databases (free and fee-based online sources) provide news, market commentary, historical stock prices, ... [read full story]

Before investing, you need to clearly state your financial objectives and know your risk-tolerance level. This information can help you determine your required rate of return. By doing this type of homework, you can determine which categories of financial assets you may want to consider investing in. For example, if you’re selecting investments for your Individual Retirement Account (IRA), you don’t want to invest in tax-exempt municipal bonds (because being tax-exempt twice isn’t the best way to make use of tax exemptions). Here are some examples of online sources for identifying investment opportunities: Company profiles describe a firm’s organization, products, financial position, chief ... [read full story]

Investments provide opportunities to make money in both a bull market (up market) and a bear (down) market (read more about bulls vs bears). No one ever knows for certain whether the market will go up or down, but investors can develop an information system to watch indicators for potential price changes and investment opportunities. This exclusive Qwoter College series introduces the elements you can use for building your very own online investment information system that meets your specific needs. Investment indicators often signal future market trends. For example, changes in bond prices and interest rates often reflect trends that may affect stock prices. That is, if bond yields decline, investors often rush to purchase stocks, causing stock prices to increase. Investors need this ... [read full story]

Why Invest in Stocks? Stocks are but one of many possible ways to invest your hard-earned money. Why choose stocks instead of other options, such as bonds, rare coins, or antique sports cars? Quite simply, the reason that savvy stock market traders and investors invest in stocks is that they provide the highest potential returns than any other investment. And over the long term, no other type of investment tends to perform better. On the downside, stocks tend to be the most volatile investments. This means that the value of stocks can drop in the short term. Sometimes stock prices may fall for a protracted period. For instance, those who put all their savings in stocks in early 2000 are probably still underwater today. Bad luck or bad timing can easily sink ... [read full story]

To become successful in the stock market, you need to know when the market is going to turn so you can buy or sell your stocks. There are two main principles at work in the stock market which causes a market to turn. Both these principles will arrive in varying intensities producing larger or smaller moves. Principle One. The herd will panic after substantial falls and start to sell usually on bad news. Then ask yourself: Are the trading syndicates and market makers prepared to absorb the panic selling at these price levels? (must be on a down bar). If they are, then this is a strong sign of strength. Principle Two. The herd will at some time after substantial ... [read full story]

Public Companies throughout the world issue new stock shares every day. But what is stock, and why does a company issue it? To help you to better understand these important investment and stock trading concepts and strategies in this tutorial we will discuss: What is Capital? Equity vs. Debt Why Do Corporations Issue Stock? Advantages for Stock Holders How Stock Trading Works   Let us begin by defining the word capital. What Is Capital? Let's imagine that you ... [read full story]

What is the over the counter market? The over the counter market, known as the OTCBB, which stands for Over The Counter Market Bulletin Board, is a regulated quotation service that displays real time quotes, last sale prices, and volume information in over the counter equity securities. An OTC security is any stock that does not trade on Nasdaq or a national securities exchange. OTCBB stocks include national, regional, and foreign equity issues, warrants, units, American Depositary Receipts and Direct Participation Programs. The OTC market was started in June 1990 on a trial basis as part of a wide range of market reforms that were taking place at the time. The aim of the market reforms was to make the OTC equity markets ... [read full story]

Like any entrepreneur, an investor must know what the market they are entering is comprised of. Without a basic definition of the stocks you will be investing in you will make countless mistakes out of confusion and lack of direction. You must research it fully and know all the details that pertain to the given business segment that you are entering into. Before commiting a single dollar to the new pursuit you will be making, make sure that you are aware of everything there is to know about the market itself. In order to become successful, you will need to analyze the penny stock market from the ground up. Before you go off and start trading in penny stocks, you need to decide upon ... [read full story]

Trading stocks. You hear that phrase all the time, although it really is wrong - you don’t trade stocks like baseball cards (I’ll trade you 100 IBMs for 100 Intels). Trade = Buy or Sell To “trade” means to buy and sell in the jargon of the financial markets. How a system that can accommodate one billion shares trading in a single day works is a mystery to most people. No doubt, our financial markets are marvels of technological efficiency. Yet, they still must handle your order for 100 shares of Acme Kumquats with the same care and documentation as my order of 100,000 shares of MegaCorp. You don’t need to know all of the technical details of how you ... [read full story]