Understanding The Stock Market For Beginners
Understanding the stock market is not easy, but it can be done. You have to just take your time to understand it first before investing any money. When people think of the stock market for beginners, some will say that it’s too difficult too invest for yourself. I say they’re wrong.
Start off with learning how to read balance sheets and financial reports. If just the sound of that scares you, don’t be. It sounds harder than it is. Every quarter a publicly traded company has to release an earnings report. In the report, the company will file their income and expense for the previous quarter (3 months), as well as they will also give some information on what they expect in the next quarter. It doesn’t matter who’s report you read, you are just trying to get an understanding of the reports themselves.
As you learn about the how the quarterly reports effect the company’s stock price, you will move on to the next lesson to be learned. Learning how to read a company’s stock chart. The chart shows multiple information on how the stock is trading. On the chart you will find the price-per-share, how many share are traded, the bid/ask (sell/buy) price, and the open & close price. Of course there is other information, but that’s the highlights.
The toughest thing I feel there is to learn about the market is, the feel of the overall markets. The trend of the market can change so quickly just from some news being released. Even a good solid company can fall on value just because the overall stock market is in a down trend. It doesn’t even have to be the total market, it could be in the sector that the company does business in.
Let’s take the Agricultural sector. Caterpillar, John Deere and Kubota are all in the same industry. If John Deere comes out with their earnings report before the other two and reports a lost of revenue in the last quarter, not only will John Deere’s stock price will fall, but also the other may come down in value because investor pulled out some of their investments to be safe before the other release their earnings.
Which brings me to my last point. Emotions are the worse thing you can bring to the stock market. If you are a beginner in the stock market, this may be the hardest thing for you to do. First, you don’t buy stock in a company that you love. You can not get emotional with the stocks you invest in. If the facts are not there to support your investment, you shouldn’t be in the stock in the first place. Many times, you will get into a stock because the fundamental of the company were solid at the time, but as since changed. You need to cut all ties with the stock. Just because the company did good last year, it doesn’t mean it will do good this year. you have to consistently keep up with the companies that you invest in. You should spend a least one hour per week per each stock you own. Things change overnight and you’ll want to be ready for when you might need to buy more of the stock or sell it all.
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Reading Stock Charts – The Basics
When you first take a look at a stock chart, the information you find may a bit overwhelming. Sure, it kind of looks like the same type of graph you’ve seen since 2nd grade, but what does everything mean? To truly understand your investment portfolio, you need to learn how to read stock charts.
If you’re looking at the stock charts in your local newspaper, the type of chart you’ll typically see there is a line chart. This chart simply takes the closing price for each day and connects them in a straight line. On the right hand side of the chart you will see numbers that correspond with the price of the stock. These prices usually are broken down to the penny, so if you’re stock has closed at $10, you will see the line’s last point at 10.00. If your stock raises a dollar in price, to 11.00, it is said to have raised a point. On the stock market, a point is equal to $1, or 100 pennies. On the bottom of the chart you’ll find the date. So that means a stock chart is plotted as time vs. price.
If you’re looking at time-frames shorter than a day, typically used for short-term trading, the time on the bottom of the chart will be broken down into smaller increments. They can be as small as 1 minute (typically used for day trading stock charts), or as large as 4 hours (which is frequently used when trading the Foreign Exchange). By using these small time-frame charts, traders attempt to capitalize on the fluctuations a stock goes through during the trading day. If you’re looking at stock only on a daily basis, you may only see small shifts in the price, but a stock can move several points up or down during the day, only to bounce back to being very close to its opening price. Line charts are not very useful in this capacity, so either a bar chart, or a candlestick chart is used. Both of these types of charts display either a bar, or candlestick per unit of time. These bars/candlesticks show the highs & lows as well as the opens & closes. This is much more useful when day trading or swing trading, because it gives a bit more insight into the stock’s past, and potential future movements.
That pretty much sums up the basics of reading a stock chart. To begin to be able to use this information for your investments, you’ll have to look into technical analysis. Technical analysis is the study of a stock’s data, including its charts, to understand past movements, and attempt to predict future movements.
Tags: candlestick chart, daily basis, day trading, foreign exchange, investment portfolio, line charts, Stock, stock chart, stock charts, stock market, trading stock