Understanding How To Trade In the Stock Market

The stock market can appear to be quite intimidating to anyone who doesn’t have a general working knowledge of what it is and how it works. Before you can begin to understand the how’s of trading, it is important to have a general understanding of stock market terms. You would then need to determine if you are more of a long-term trader or a high-frequency trader. Once you have made that determination, you are ready to begin your journey into trading.

Day Trading Compared To Other Styles Of Trading

The main reason any person begins an endeavor into trading is to make money. The question, however, is are you looking to make money over a longer period of time versus shorter periods? For anyone new to trading, you may not understand what this means. With longer periods of trading, individuals look for investment vehicles such a s mutual funds or stocks. Short-term or high-frequency trading is more similar to what a day trader does. In day trading, investors are buying and selling a security several times within the same day. High-frequency trading does pose a higher risk; however, these risks can be mitigated using effective trade management techniques that minimize losses and maximize profits.

Keys To Successful Trading

The main key to success is being able to identify areas of strong support and resistance. In a bull market (an up market) or a bear market (a down market) support and resistance can be used to time your entries and exists for a trade. For example, in a bull market, you would wait for the market to reach the highest point and then sell the market at a place of resistance. To use support in a bull market, you could wait for the market to reach a high point and pull back to a place of support where you can go long or buy the market.

The same holds true for a bear market. When the market is going down, wait for the market to reach its lowest point which is known as support and buy the market. If the market is going down and pulls up to a place of resistance, you could sell the market at that point of resistance.

There are certain ways to identify strong areas of support and resistance which include:

  • Fibonacci retracements
  • Moving averages
  • Swing highs and swing lows

Other keys to success include implementing a daily plan prior to trading. Once you have implemented your plan, it is important that you stick with your plan. Minimizing your losses is also a highly important factor when it comes to trading. As mentioned earlier, it is important to maximize your profits and minimize your losses. Treating trading like a business is also an important aspect of trading. In your trading business, it is important to implement a business plan as you would with any other business venture.

Understanding How News & Events Affect The Market

Recently, there has been a large amount of volatility in the market. What this means is that the market has been making large swings from the high of the market to the low of the market. Under normal circumstances, good news causes investors to buy stocks which, in turn, causes the market to increase. Conversely, bad news has the opposite effect.

News announcements that affect the market include:

  • Quarterly earnings reports from corporations
  • Consumer Price Index
  • Producers Price Index
  • Home sales (new and existing)
  • Jobs reports
  • Retail sales reports

These are just a few factors that can have a significant impact on the movement of the market. You can check a number of resource industry reports to access more detailed information. It is important to understand how these announcements can influence a trader’s decision to buy or sell the market. In a bear market, there could be buying opportunities when the market reaches strong levels of support. In a bull market, there could be selling opportunities once the market reaches strong areas of resistance.

With any new endeavor, it is important to know as much detail as possible. Education is the key when it comes to successful trading. It is important to stay connected to a source that will provide you information to make you a better trader. When you have the proper knowledge, you are able to execute trades that will help to minimize your loss and maximize your profits. Consider the points mentioned above to learn about how to trade in the stock market.

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