When it comes to trading stocks, it's important to understand how to understand the principles of stock market analysis so you can decide which stocks to buy or sell for your portfolio, such as stocks belonging to the S&P 500, which contains some of the most popular stocks in the US from large businesses that trade on both of the US stock market exchanges. Without that knowledge, you could lose thousands of dollars and be totally lost in the system.
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.
In the stock market, you can buy and sell the stocks you own. Besides this, there are several strategies such as short-selling, which means you do not own the stock, but sell it nevertheless (by borrowing it from your broker at a fee) because you feel its price is going to drop - and when the price does drop, you buy it back. Plus, you can buy or sell stocks at a future date if you trade in the derivatives market. Then, you can also indulge in margin buying, which in simple terms means you borrow money to buy stocks, thereby exposing yourself to debt.
Look at Warren Buffett buying into Bank of America when it was the poster boy for the recent stock market crash. Nothing but bad news on BOA. Look at the smart hedge fund managers who shorted the mortgage business before it became apparent that it was a bubble. These people had the courage of their own minds and the ability to act in defiance of, actually in opposition to, the crowd. Remember, we don't get in front of the stampeding crowd in a stock market crash - too dangerous - but we do wait for them to make the mistake of overselling the market. When that market shows signs of turning, we look to buy. When there is a bubble, we look to short. This is why the simple strategy of being a contrarian works for some money managers. However, there is more to it than that, more potential for big profits. You must trade with the trend but anticipate, judge trends and market momentum and look to get in at the right price. Remember it is lonely. In one of my better calls, I had my clients mostly in cash and holding off buying after the market peaked in August 1987. The day after the October crash, I called them and issued a screaming buy recommendation as it seemed to me that the panic had worn itself out. We had reached the low. Few of them could summon up the courage or the cash to buy, but those that did never saw prices that low ever again. Buyers were scarce and people who were putting out buy recommendations were even more scarce, but that was the right time to buy. Are you starting to see that you need to have an independent mind and the courage of your convictions to win in the stock market?
A particular pattern that is often seen in stock market analysis is known as the Cup and Handle. This is when a stock starts off with a high price and then dips in cost and eventually returns to a higher price. When that stock levels out in costs, it is called the handle of the stock, and this can be a good place to buy so the trader makes good profits when it goes back up, which is the cup part of the pattern.
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.
In the stock market, you can buy and sell the stocks you own. Besides this, there are several strategies such as short-selling, which means you do not own the stock, but sell it nevertheless (by borrowing it from your broker at a fee) because you feel its price is going to drop - and when the price does drop, you buy it back. Plus, you can buy or sell stocks at a future date if you trade in the derivatives market. Then, you can also indulge in margin buying, which in simple terms means you borrow money to buy stocks, thereby exposing yourself to debt.
Look at Warren Buffett buying into Bank of America when it was the poster boy for the recent stock market crash. Nothing but bad news on BOA. Look at the smart hedge fund managers who shorted the mortgage business before it became apparent that it was a bubble. These people had the courage of their own minds and the ability to act in defiance of, actually in opposition to, the crowd. Remember, we don't get in front of the stampeding crowd in a stock market crash - too dangerous - but we do wait for them to make the mistake of overselling the market. When that market shows signs of turning, we look to buy. When there is a bubble, we look to short. This is why the simple strategy of being a contrarian works for some money managers. However, there is more to it than that, more potential for big profits. You must trade with the trend but anticipate, judge trends and market momentum and look to get in at the right price. Remember it is lonely. In one of my better calls, I had my clients mostly in cash and holding off buying after the market peaked in August 1987. The day after the October crash, I called them and issued a screaming buy recommendation as it seemed to me that the panic had worn itself out. We had reached the low. Few of them could summon up the courage or the cash to buy, but those that did never saw prices that low ever again. Buyers were scarce and people who were putting out buy recommendations were even more scarce, but that was the right time to buy. Are you starting to see that you need to have an independent mind and the courage of your convictions to win in the stock market?
A particular pattern that is often seen in stock market analysis is known as the Cup and Handle. This is when a stock starts off with a high price and then dips in cost and eventually returns to a higher price. When that stock levels out in costs, it is called the handle of the stock, and this can be a good place to buy so the trader makes good profits when it goes back up, which is the cup part of the pattern.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: Have To Know Some Information About Wealth Building You have full permission to reprint this article provided this box is kept unchanged.
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