Moreover, the stock market is considered a good choice for long-term investments. This is based on the assumption that well-run companies continue to grow within the stock market and pay handsome enough dividends for their stockholders.

Fluctuations

The same opportunities are also afforded on short-term investors in the stock market. Market jitters, even those without basis, can cause rapid price fluctuations.

General investor psychology, likewise, can trigger the prices of stocks to either fall or rise. Investor suspicions about a company’s value can be set off by news reports, economic conditions and rumors.

Earning opportunities

When there is a sharp rise or drop of a stock price, some investors quickly jump on the bandwagon and activate an even faster acceleration. (The market will correct itself later, though.)

In the meantime, knowledgeable investors whose keen eyes are watching the market see these kinds of situations as great opportunities for profitable trading.

These opportunities depend, of course, on the types of short-term traders. There are three categories in short-term trading ‘ position trading, swing trading and day trading.

Position trading

Compared with the other styles, the stocks in position trading can be held at a relatively longer period. Position traders are expected to hold on to their stocks from 5 days to six months at most.

The reason: they are watching out for the fundamental changes in the stocks’ value. However, position trading does not need much time.

Studying the stock market can be as short as 30 minutes a day and it can even be done outside regular working hours. This type of trading is ideal for those investors who want to supplement their income.

Swing trading

Compared with position traders, swing traders hold their stocks for a much shorted period of time, which generally lasts for about one to five days. Swing traders are mostly driven by emotions rather than by fundamental values.

This type of trading needs more time in researching on stocks and thinking of strategies because swing traders need to identify trends so they can pick out the best trading opportunities.

As it is, swing traders tend to rely on daily and mid-day charts to plot stock movements. However, this type of trading usually brings out greater paybacks after sometime.

Day trading

From a consensus, this is considered to be the riskiest way to play the stock market. To be fair, this could be true only for the slightly uneducated trader but not for an experienced one.

What everyone is afraid of is the fact that day trading generally takes less than a day and can be as short as a few minutes. By this token, day traders have to stay rational and analytical to survive this type of trading.

Day traders have to make out strategies when to get in and out of a position relying mostly on information that can influence stock price movements. All in all, day trading needs to be done full-time because it requires paying close attention to the many different stock market conditions.

Trends are important because they affect the market in big sweeping tides. Timing, on the other hand, is the learned investor’s inner business radar at work. The more experienced he is, the better is his sense of timing.

Market trends

Market trends are the tendency of particular stock prices to go up or down for considerable periods of time ‘ triggered by some big events, influential persons, or sometimes whatever is the current fashion.

A simple case in point is the September 11 terrorist attack. It had set off a trend where stock market prices for tech companies went down.

Product demands

World events would also have great effects on the stock market. Oil crises and some political problems in concerned countries would definitely have an effect on world oil prices.

To those who have to buy oil and gas, the prices would go high. Those with investments in oil stocks would be raking it in because of the high demand and the high price. Demand for a product affects the price of its stock.

Price fluctuations

The first factor that influences price is the basic law of supply and demand. If the company has only a few shares of stock to sell, and there are a lot of interested buyers, there would a rise in price.

Working the other way around is the fact that when there are a lot of shares but few interested buyers, the stock’s price goes down.

Outside factors

Usually, big world events affect stock market trends ‘ wars, the economy, oil prices and currency collapses. New oil discovery does the same influence on the market, albeit the other way around.

The upward movements in prices of certain market sectors that last for months or years are nicknamed bull trends. Those that are on the down movement trend in prices are called bear trends.

Timing

Timing is that special knack of investors who knows the exact time to buy or to sell any stock. For most investors, timing is simply being alert.

They watch market prices closely, keeping an eye on the rise (or decline) of prices looking for a trend. If they see a trend and the market is rising, they tend to hold onto their stocks.

On the other hand, if the market price of a stock seemed to go on a downward roll, most investors tend to sell their shares because they want to hold onto the profits they have already made.

Timing, for most investors, is actually identifying the trends in the market needed to identify in turn the right time to buy or to sell. The enterprising investor takes advantage of news about the economy, interest rates, conflicts and many others.

Last words

Timing and trends in stock market mean many different things to different investors. Those who want to make a quick dollar do their buying and selling regularly. However, if you are investing for the future, you do not look at the market the same way as everybody.

Before one thinks of trading in stock market, it would be best if you understand that not all people are fit for this industry. Accepting that not all people can indulge into it without proper credentials and experience on the finance industry and in the stock market, would pave the way for success since you would not be complacent.

To be prepared, it would also pay to get information through research’which could either be online or by reading reference materials such as business magazines and books. You can also get additional knowledge if you ask people who have tried their luck in stock trading and get first-hand tips from their experience. If you want to get exposure, you can experience the thrill and the excitement of stock trading by visiting the stock market and observe how it works as well as how people inside handle it.

What matters most

Many experts say that knowing all the basics in trading and in the stock market are very important because these keep you up to date with everything that is going on.

But, if you really want to be successful in this field, it is a must that you know the common pitfalls that have been committed by most stock traders. By knowing what these mistakes are, you can avoid them and can even develop various strategies to complement various unavoidable circumstances.

The following are the most common mistakes most trading neophytes’and even those in the business for a short span of time’commit. Make sure that you memorize them by heart to avoid committing and repeating the same mistakes.

If you are new into stock trading, you must know that:

- the records that trading stock market can create are not reliable at all times. Many first time traders believe that the records that trading robots create are trusted so they don’t do back research. If you want to be notches higher, do not always rely on these reports because chances are, these are manipulated or made up with no actual basis.

- the money can be made through day trading or scalping. This is also another big bluff in the stock trading industry because simulations are used to promote and create transactions that are not based on actual statistics. Don’t rely on the voices that you hear’either online or in the stock trading market’because these only aim to lure you into transactions that don’t guarantee anything.

- many would rely on the short-term goals in trading in the stock market not knowing that this doesn’t guarantee success in the future. For many, this is because short terms can be random and fluctuates easily, thus, not ensuring anything on your transactions in the coming years.

In this day and age, there are still people who have heard about the stock market but are really clueless on the many things connected with it. The following are some definitions and short explanations about the stock market and its various features.

stock market

Also known as the equity market, the stock market is one of the many vital areas of a country’s economy. Its main function is to provide companies access to capital and investors.

The investors, on the other hand, want a slice of ownership of a company with an eye for potential gains hinged on the future performance of the company.

Stocks and ownership

Basically, a stock is a share in the ownership of a company, and a claim to a part of the company’s assets and earnings. Consequently, the more stocks (or shares or equity) you have, the bigger your ownership stake in the company becomes.

Having some of the company’s stocks means you are one of the many owners (or shareholders) of the company. Technically, you own a very small piece of everything the company owns including its furniture and equipments, its contracts and also its debts.

As owner, you are entitled to your share of the company’s earnings. Some types of stocks also entitle you to some voting rights.

Stock exchanges

These are the entities (corporations or organizations) where the stocks are listed and traded. Their business is to bring buyers and sellers of stocks together, thus providing a marketplace (real and virtual) where real-time trading information is exchanged.

stock market participants can be small individual stock investors or large hedge fund traders and their orders are taken care of by professional brokers who execute them.

Some exchanges are physical locations with trading floors where bids and offers are entered verbally. Other exchanges are virtual network of computers where trading is done electronically from traders at their computer terminals.

Trading

Trading is done when a potential buyer bids for a specific price for a stock and a potential seller asks a specific price for the stock.

Buying or selling at market means there is acceptance to the bid price or ask price for a stock. When there is a match between bid and ask prices, a sale takes place.

This is usually on a first-come-first-served basis, which works fine because sometimes there are multiple bidders or askers for the same price.

In the United States, all stock market trading includes all those listed in such exchanges as the NYSC, NASDAQ and AMEX, including the other regional exchanges like the OTCBB, and Pink Sheets. Other countries have their own stock exchanges.

Types of exchanges

The trading at the New York Stock Exchange is a physical one, the trading being done on a face to face basis on the trading floor. (This is sometimes called ‘listed’ exchange because only stocks listed with the exchange may be traded.)

At the NASDAQ, all the virtual trading is done over a computer network. The trading procedure is the same as that at the NYSE. The seller gives out the asking price and the buyer provides the bidding price, after which both buyers and sellers are matched electronically.

That, in a nut shell, is how a stock market operates.

A bear market, as everyone knows, is that general and continuous downward movement of the stock market. On the other end, a bull market indicates the constant upward movement of the stock market.

When a particular stock seems to increase in value, it is described as bullish. A stock that seems to decrease its value is describes as bearish.

Bear and bull indicators

Short term market fluctuations, however, are not indicative of bull or bear markets. A bear market is when the price of key stocks fell by 20% or more for at least two months.

Prices, of course, sometimes temporarily increase within a bear market. Bull markets, on the other hand, indicate a rise in the prices of key stocks over a certain period of time.

Economic indicators

Usually, the state of the country’s economy is reflected in the conditions within the stock market. With an economy with reasonable rates and low unemployment, the condition is regarded bullish.

During a country’s economic slowdown, bear markets occur in the stock market. Investors lose their confidence and companies start laying off its workers.

An exaggerated bear market usually leads to an economic crash brought on by panic selling. An exaggerated bull market usually leads to a market bubble brought about by investor over-enthusiasm.

Bull markets

As expected, a bullish market generates a big number of investors who want to buy stocks. At times like this, the economy is usually doing very well.

It is not surprising that many people would want to buy stocks because they have the extra money. This, however, triggers an increase in stock prices because there will be a shortage in the supply and the demand for them is great.

Making money during bull markets is easier. All dips are temporary, and are corrected in time. Because the upward swing of prices cannot go on forever, the investors need to unload their stocks when the market reaches its peak.

Bear markets

During bear markets, a lot of investors typically unload their stocks and stash their money is fixed-run investments (like bonds). In these times, supply tends to exceed demand as money is withdrawn from the stock market.

On the bright side, bear markets are the most opportune times of picking up stocks at bargain prices. Usually, the greatest chance of making profits is at the end of a bear market. Since prices usually fall before they recover, investors prepare themselves for some short-term losses.

Strategies

During bear markets, investors usually resort to other investment strategies. One is short-selling. This involves the selling of stocks that investors do not own in the anticipation of further decreases in price.

This gives the investors a chance to buy the stocks for a lower price than their previous prices. Fixed-return investments are also used by investors to generate income.

Finally, they buy defensive stocks (including government-owned utilities) because of their relative safety to price downward roll in bear times at the stock market.

It is best if you have already mastered the basics when it comes to stock market and trading so you will know exactly what are you getting into. If you are already armed with the basics, then you could somehow estimate where your involvement in stock trading could take you.

The keys to success

If you are not careful and prepared enough, chances are you are not going to make it in stock market. This is because the industry’being the largest in the world that generates billions of transactions non-stop’takes a lot of knowledge, experience, guts, and decisiveness in order to be successful.

To be able to become successful in the stock market, one must be very wise in dealing with transactions. One must also know where to trade, the peak season for the trading, the techniques to be used, and the updated strategies to generate as many transactions as possible.

Aside from the qualities mentioned, you can survive the world of trading in stock market if you:

- have the ability to decide on the length of the transactions. This is very, very crucial for a trader to ensure that he or she still has a portion of the market that can be penetrated. A successful smart trader should decide first if he or she would go long term or short term on the process. This is a very crucial decision because it will somehow give direction to the transaction and will somehow give a hint, which one will be very successful for you.

- controlling emotions. The biggest problems that majority of the traders in the stock market are having the idea what to expect in the industry. Studies show that the biggest problem that most people in trading stocks experience is dealing with their emotions.

- have enough guts to start big. Although short term stock trading can do a beginner good’by closing transactions in short period of time’it will do them bad in the future because these have no stability. They say that it is better to plot a stock and trade it to ensure that this is where the direction and stability can be seen.

- have the ability to detach from emotional baggage. This is indeed very hard because most of the time’especially in the times of need to generate transactions’traders become anxious that there will be no transaction that will take place within the day. There are also those that let their emotions rule over their rational thinking, which usually leads to incorrect means of dealing with the problem at hand. Although it’s human nature to experience certain levels of emotional dilemma, it is best to detach yourself from these if you really want to be successful in the stock market.

Getting started

The stock market is all about selling. It’s all about testing your trading skills and how far you could push your limits. If you are among those who would want to take a risk and join the exciting, complicated world of the stock market, here are some keys to help you get started:

- arm yourself with knowledge. You can get enough information on stock market by enrolling to specific courses that focus on it. You can also read a lot of books and other reference materials that talk about it. But the best thing would be is to visit various websites that offer free and seemingly limitless information on it. If you want more first-hand information, by try asking people you know about their experiences in the stock market.

- always persevere and work hard. This formula always works once you get into stock market. Because if you don’t give up and you keep on working hard to achieve your goals, a lot of opportunities will be opened up to you. Persevering and working hard will also keep your feet firmly planted on the ground.

- look forward to a healthy competition so you would not be complacent. This could be done by keeping yourself up-to-date through always monitoring the current trends in stock market to keep your knowledge up-to-date. This can be done by constantly monitoring the stock market through magazines and news reports in the industry.

- re-assess yourself and know where you stand. This is very important before you get into stock market because it indicates your personal assessment on your current status in the market. Knowing where you stand will also help you determine if you are still in the right path of success.

- device and plot your strategies. Although strategies don’t always work in the stock market, it is best that you have your own strategy to start with. If you are able to come up with your own strategy, it means that you are ready to deal with more difficulties ahead of you.

- always reflect on your goals and realize them. Just like in any business, having a goal is a very important key to achieve success in the stock market. If you know your goals, then you will know if you are still faring well or you need to re-assess all your short and long-term goals.

- don’t give up when your fail. Venturing in the stock market is not always about being success. Keep in mind that there will always be windows for failures along the way and accept that this is part of the industry’s nature.

Contrary to what some people think, the stock market is doing everything to try to make everyone a winner. It is good that you should be familiar with the stock market’s options.

Stock options

Stock options are contracts to buy (or sell) stocks at a particular price at a future time. Stipulated in the contract is the option of the buyers of not being obligated to exercise their right to buy the stocks.

However, the option sellers have the obligation of selling underlying stocks if the buyer wishes to buy them presently.

Call option

Call option is the name to describe a contract to buy. Buyers hope prices will rise so that they can have the stocks for a lesser value.

Meantime, the call option sellers either do not expect changes in the stock prices or they accept partial loss of profits made from selling the call options.

Sample call option

An investor might buy a call option on IBM (for instance) with $50 strike price. The price is the same as the current price in $40 and the cost call of $5.

If the stock price rises above the combined amount of the strike price and the cost of the call price, the buyer can exercise his right to buy. He makes a profit by reselling the stocks.

He seller also gains from the price increase of $55 from the original $40 plus the sold call at $5. If the price stays below $55, the call is not exercised.

The seller, however, gains $5 and the buyer loses $5. (The stocks are usually traded in lots of 100.)

Stock details

Options are exercised on specific stocks. It contains the details of the stock: the name, the strike price, the expiration date and the premium.

When the option cannot be exercised after the expiration, it is considered worthless. (Per tradition, expirations usually end on the 3rd Friday of the month.)

Put option

This is the option to sell a stock. The option-holder has the right, but not the obligation, to sell a particular stock within a certain time period for a certain price.

Here, the buyer expects the fall of the stock prices but h refuses an outright sale in case the price goes up again. The seller here accepts the stocks at a low price because he feels the price is stable.

Investment opportunities

These stock options are used to protect against losses and can be used as investment opportunities as well. They are commonly used in combinations in the purchase of stocks.

In a bull market, stocks and call options can be bought and put options are sold. In a bull market, investors are allowed to take full advantage of rising prices.

Stocks and call options can be bought and put options can be sold in a bull market. In a bull market, an investor is allowed to take full advantage of the rising stock prices.

During a bear market, investors can sell stocks, sell calls, and buy put options to limit their losses and generate profits. In an unstable stock market, a mixture of puts and calls are used to maximize profit potentials for all.

These strategies count up to more than a hundred ways, all tried and tested, all effective, and have been so for many years. Experts advise beginners to investigate some more of these basic trading strategies.

Hedging

Hedging is a way of protecting an investment through the reduction of the risks involved in holding a particular stock. One way is buying a put option.

This allows the selling of the stock at a particular price within a certain time period. In turn, this offsets the risk of a decrease in the stock prices. (There will be a value increase of the put option as soon as the stock price falls.)

Selling financial futures like the S&P 500 is another way of hedging against market declines. However, the most expensive hedging strategy is to buy put options against individual stocks.

Investors with big portfolios is better off if they buy a put option on the stock market itself for the reason that it protects them from general market declines.

Dogs of the Dow

This strategy (popular in the 90s) entail the buying of the best-value stocks in the Dow Industrial Average. These are the ten stocks with the lowest P/E ratios but with the highest dividend yields.

This tactic hinges on the idea that these ten lowest companies have the most potential for growth. The Dow Index have their listed companies as those which have a reliable investment performance.

Pigs of the Dow

This is a 180-degree variation of the Dogs of the Dow strategy. In Pigs of the Dow, five of the worst-performing stocks on the Dow are selected, based on their price decline percentage from previous years.

The twist lies in the assumption that these Pigs of the Dow, the worst-performing five stocks, are going to rebound more than the others will.

Buying on margin

Buying on margin is buying stocks using money from a broker. Because of more stocks received despite the low investment, the investor is given more by margin buying rather than by full payments.

In the event the stock loses value, the losses in margin buying is correspondingly bigger. In order to limit these, investors have stop-loss orders when buying on margin. This is usually about 10% of the total account value.

Dollar cost averaging

This is investing fixed dollar amounts on a regular basis. (Example: monthly buys of shares from a mutual fund.)

A price drop will cause the investors to receive more shares for their money. Conversely, a raise in the price will cause fewer shares bought.

Value averaging

Value averaging is the alternative to dollar cost averaging. This involves a decision to have investments set to a regular value.

If the price of the fund increases, the investors will put in higher dollar amounts to match the increase. If the fund price decreases, they will spend less money. Their investment will average out to the actual cost of the fund.

To date, value averaging performs better than dollar cost averaging strategy most of the time. When used in tandem with the other stock market strategies, value averaging can actually help in securing investment fund growth.

The original intent of a stock market is to facilitate trading between buyers and sellers in one place to reduce risks. Simply put, the stock market is nothing more than a sophisticated farmer’s market of buyers and sellers doing their business.

Traditional exchange floors

Like any other market place, people in these sites could become agitated and noisy and just plain excited with the prospects of earning money.

Sometimes, you can see glimpses of these transactions in news reports ‘ traders talking on two-way radios or telephones, waving and yelling, and furiously sending signals with the other traders on the floor.

Virtual stock exchanges

Lately, with the advent of the computer and the development of the internet, another type of stock market exchanges came into existence. These are the virtual stock market exchanges, usually a network connected by computers where the trading is transacted electronically.

Market types

The stock market has two distinct types of market ‘ the primary and the secondary market.

The primary market is the place where securities are created by means of IPO (initial public offering). The secondary market is where investors trade previously-issued stocks without the participation of the issuing owner-companies.

This is the market we all know (and see) today at the stock market exchange floors. (In the stock market business, the company need not take part in the trading of its stocks.)

NYSE

The New York Stock Exchange is the most prestigious in the world. It was founded more than 200 years ago in New York City by the original 24 stockbrokers and merchants.

With companies like Wal-Mart, General Electric, Coca-cola, McDonald’s, Citigroup, and Gillette among others in its rosters, the NYSE is the market of choice for the biggest U.S. companies.

Traditional trading

In NYSE, the first type of exchange was done on the trading floor on a man-to-man basis. From the brokerage firms, orders go down to the brokers who transact business at the trading post where buyers and sellers are matched.

The prices are determined using the auction method ‘ the current price is the highest amount the buyer is willing to pay, and the lowest price someone is selling. As soon as a trade is completed, the deal is sent to the investor who placed the order via the broker.

NASDAQ

The new and 2nd type of exchange is the virtual kind called an over-the-counter (OTC) market, led by the very popular NASDAQ. These markets do not own central locations or floor brokers. Trading is completed through a computer-and-telecommunications network of dealers.

The tech boom of the 90s made NASDAQ a serious NYSE competitor today. Now, the NASDAQ is home to many of the largest technology companies (Microsoft, Oracle, Cisco, Dell, Intel and others).

Other exchanges

All the major cities and business hubs around the world have their own exchanges and trading houses. Some are still doing traditional man-to-man transactions while others are into the modern high-tech models of selling and buying stocks.

Whatever trading models are used (traditional or high-tech), the stock market is here to stay.