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Stock Market Basics – How Great Research Can Bring Great Wealth

Not understanding the stock market basics impacts almost all unsuccessful stock traders negatively.

To many mediocre and unsuccessful traders, lack of control over research may sound like a strange point to pick as one which can lead to poor trading results. But every exceptional and successful trader I know would say methodical research is a corner stone of their success.

Let’s look at the 2 opposing position. Many traders who do “OK” trade on news, tips, ideas that come across their desk or over the newswire, or some other haphazard method for finding trades. A key characteristic of their trading is that it is reactive.

The exceptional trader doesn’t take such risks…he is proactive. Of course, great traders are also reactive. They will allow the news and other events to generate trades for them. This is part of their pro-activity. In addition to that, great traders are is purposefully and methodically trawling the markets looking for opportunities. This regular trawling, one of a key set of stock market basics that they have totally mastered, is a key difference that separates mediocre from stellar traders.

The great traders research is regular, wide and eventually deep. His missed opportunities are few and far between and the quality of his average trades far surpasses the average trades of reactive traders. This is simply because he has a greater catchment area in which to find trades…and therefore probability works on his side because a methodical and repeated process throws up many sterling opportunities regularly.

So, to try to ensure repeated or higher success in the markets, try and do your research methodically. If you aren’t researching methodically and are a reactive trader, you are without question leaving money on the table over a long enough time horizon…and this could come back to bite you….hard.

Why risk it? As Nike says….Just Do It! (right from now on)…and master the stock market basics.

Quick Tip to Understanding the Stock Market

People have come up with various ways of achieving financial freedom and becoming a stock trader is one of them. If you aspire to trade with the greatest tools ever created for accumulating wealth, then equip yourself with this quick guide to understanding the stock market.

You need to have a strong foundation in understanding stocks and how it is being traded in the stock market. Over the last few years, people have become increasingly interested in the stock market. Coupled with the advancement of trading technology, this demand has opened up the market so that now almost anyone can own stocks.

However, despite its raging popularity, most people fail to have a complete understanding about stocks. Most people get their knowledge about stocks from others who often don’t know what they are talking about. This widespread misinformation about how trading stocks can get you rich quick has also become severe. People have become misled that trading stocks is a magic formula for instant wealth and they often forget that there are risks involved. Although it is true that stocks can generate massive amounts of money, but it also involves higher risk compared to common business investments. The only way you that you can protect yourself is by getting proper education about the stock market. You need to fully understand where you are investing your money.

You need to have a full grasp in understanding the stock market before you can make wise investment decisions. Invest your time in researching and studying before you decide to take that risk in investing in stocks.

Stock Trading For Beginners – Your Guide to Understanding Stock Trading Basics

When it comes to trading on the stock market, there are two choices to make, either randomly choosing and hoping for luck or using strategies to determine what stocks to buy, when to sell and how to protect your investment dollars. It is much smarter to use strategies, but the investor will have to choose from hundreds of different strategies. There are a couple of methods that have worked well for many years. Beginners should first investigate these basic strategies to see how they perform, and then the investor may explore new methods.

Protecting your investment by reducing the risk that comes with holding a certain stock is known as hedging. A put option makes it possible to sell the stock for a set price during a predetermined period of time. This will offset some risk that comes if the stock decreases in price. The put option value is increased if the price of the stock happens to fall.

The most costly hedging strategy is that of buying put options against individual stocks. Buying a put option on the stock market itself may be a better idea if your portfolio is broad. That way, you will be protected against general declines in the market. Selling financial futures, such as the S&P 500 futures, is another trick to hedging against market declines.

This strategy was used by many during the 1990s bull market. The strategy works by choosing the ten stocks out of the 30 in the Dow Jones Industrial Average that have the highest dividend yields and lowest price-to-earnings ratio. All the companies on the Dow Index have long histories of reliable performance, so the ten lowest components would therefore have the greatest growth potential in the short-term. The new Pigs of the Dow strategy is an offshoot of the Dogs of the Dow. The Pigs strategy works by selecting the five Dow stocks with the worst performance over the past year. The idea is that the Pigs will rebound and perform better than the rest of the Dow components.

When you buy stocks on margin, you are borrowing money to pay for your investment. If the margin is 100%, you can buy twice as many shares as you would have if you did not buy on margin. Usually, this loan comes from your broker. The upside to buying on margin is that your money goes further. The downside is that if the stock goes down, you will still have to pay back the loan. Therefore, you should limit your margin buying and place stop-loss orders to put a floor on your losses if the market should go against you.

One of the best ways to grow your investment securely and effectively is to use cost averaging. The idea behind dollar cost averaging is to purchase a set dollar amount of stock or mutual funds on a set schedule. For example, you can purchase $100 of a particular mutual fund every month. The idea behind this is that you will be making purchases in both rising and falling markets. As the price rises you will be able to buy fewer shares and as the price falls you will be able to buy more shares.