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.
tock market analysis is the process of investigating and studying data on existing stocks and trying to predict how they will do in the stock market. This is used by most traders due to the fact that stock prices can change from moment to moment, but they normally have a pattern of either going up or down that can be analyzed and followed. Some investors use what is called technical analysis. This is mostly used to figure out the possible return the stock will provide its owners. When traders get tips on various stocks it is usually after this sort of analysis.
At one point, I even turned to penny stocks thinking they were the way to make big money in the market. After all, 5,000 shares of a stock made you feel like a pretty big investor. But in the end, even a $1.50 stock could become a .75 stock overnight, on some little ripple in the company’s game plan, and poof! Half your grubstake…gone! And, since penny stocks are usually so thinly traded, it took a “month of Sundays” just to execute a sell order. Meanwhile you watched as your sell order single-handedly brought the stock’s value down far below what you were hoping to get for it. The shortcomings of many of the stock trading strategies I tried only made me more determined to find a more predictable way to make money in the stock market. My epiphany came while turning the first few pages of a book on stock charts that had been sent to our television station by the publisher. The book had been sitting on a bookshelf in a corner of my office for some time collecting dust. The book? Analyzing Bar Charts For Profit by John Magee.
Traders have multiple tools to use when it comes to financial market analysis. They can use well-developed patterns, or use what is called support and resistance. Support is when they track the level from which lower stock prices are predicted to go up from and resistance is the height the stock is predicted to get to before it may go down in price again. The theory is that most stocks can be predicted to rise or fall after they get to a support or resistance amount.
Of course, nothing is ever as simple as it seems at the outset, and quite frankly, the study of charts took me far deeper into technical analysis than I ever had intended to go. Yet somehow the quest for a more definitive way of knowing when to buy high-potential stocks had grabbed hold of me, and wouldn’t let go until I had some hard and fast answers. I read every book on charting techniques I could lay my hands on. At night, armed with my charting software, I’d download a list of stocks and stare at their charts trying to discern what they were telling me. William O’Neil’s “How To Make Money In Stocks” helped me to better understand the relationship between a stock’s daily price action and its volume. Slowly, after what seemed an eternity, I began to spot the chart patterns.
I would like to warn you about the stock market media. The commentators are sharp but the overall look in the media is simply a reflection of crowd thinking. If the market is going up, the news presented is optimistic. If there is a stock market crash, no good news will appear. They seem to focus on the current trend but we, in our stock market trading, as a matter of stock market strategy, must anticipate. Yes, it is good to know what the current trend is but only because that is the platform, the starting point, from which you anticipate. If there is a stock market crash, you anticipate change, you anticipate the turning point. If there is a bubble, you anticipate the bursting of that bubble. So you have to know where you are now, but you are always looking where you are going in the future, then you can position yourself where you want to be. There is an overall trend in hedge fund and portfolio managers to trade the last three months of the market. If the market has been up, they want to buy. If the market has been down, they want to sell and go short. This is the way to go broke.
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