As the stock market rises in value new investors and potential traders become interested in how to trade stocks. How to trade stocks successfully is not just a matter of acting on a stock tip from your friend. It is a matter of learning both fundamental as well as technical analysis of stocks, market sectors, and the market in general. How to trade stocks successfully starts with learning the basic terms and then the skills sets necessary to trade online.
Where the Money Is
Stock traders make money buying low and selling high or by shorting a stock and then repurchasing it after it has fallen. This approach has to do with bull and bear markets, trends, trading channels, and scalping in day trading. First of all what are bull and bear markets? A bull market is one in which prices are rising on an ongoing basis. A so called bear market is one in which prices are falling. These are market trends and not day to day price changes.
- Secular trend: lasts more than five years.
- Primary trend: lasts for more than a year but less than five.
- Secondary trend: lasts for a few weeks or months but less than a year.
Understanding these terms is important for successful stock trading. If you engage in range trading (repeatedly buying at the bottom and selling at the top of the market for a stock whose price cycles up and down) you need to successfully anticipate when a stock will hit its peak and when it will bottom out and reverse course. In a long term bull market the general range will steadily head upwards causing you to continually adjust the channel in which you trade. Anticipating when the market will turn requires analysis of evolving market sentiment.
The Moving Average and Other Useful Concepts
It is all too easy to miss the forest for all of the trees when trading stocks. How to trade stocks successfully requires that you maintain a sense of where the general market is and where it is going. When a stock has been climbing rapidly it is all too easy to buy in hopes that it will just keep going up. Keep a sense about you as to what type of trend this is and if the stock is nearing a turning point or entering a new phase of increase. A useful concept in this regard is the moving average. To determine the 52 week moving average take a sum of the middle price for each day of trading for each trading day for the last fifty-two weeks. Then divide this number by the number of days of trading. Because this is a moving average you need to calculate this for every day by removing the earliest day and adding the previous day. Superimpose this average on the stock price chart that you use. When the current trading range lies above the average consider the average line to be a support level below which prices are unlikely to drop. When the current trading range lies below the average consider this average to be a resistance level above which the price of the stock is unlikely to rise. How to trade stocks with the moving average is to use this technical analysis technique to help tap into market sentiment and exploit market inefficiencies.
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