Stock Trading 101: A Guide for Beginners
What is Stock Trading?
When a stock is bought, it represents partial ownership of a publicly traded company. So, basically it means you own a part of that company. The basis of trading stocks is buying at a low price and selling at a price suitable to make a profit.
However, trading a CFD stock is a bit different. When a stock trade is opened, there is no ownership. The price of the stock is what is traded, and if it is bought or sold, a profit can be made either way.
What to Look Out for When Trading Stocks
There are many factors that drive prices such as what stocks are in the news and quarterly earnings. For example, if Tesla were to reveal a new car model, this could boost share price, leading to heavy buying pressure in the market.
Then there are companies that have a high value. But will they always have a high value? A recent case of this was when Netflix missed a subscriber target for a previous quarter. This resulted in over $100 in value being wiped off the stock, leading to a sharp sell-off.
It is also helpful to look out for owners of major companies that could affect share price. Names such as Elon Musk and Mark Zuckerberg have also been known to shake up the stock market with social media publications.
Technical or Fundamental?
As with any type of trading, there are two main approaches when placing trades in the market. With stock trading, fundamentals have a heavy impact on the stock direction, however, technical analysis still has a big say in price action.
As previously stated, quarterly earnings and product announcements cause a shift in the market. But if a stock is running in a bull or bear market, then this should not be overlooked. Should optimism create an upward move, or conversely pessimism pushing a downward drift, jumping on these trends could lead to profitable opportunities.
Don’t Forget the Indices!
The major indices around the world are like a stock market’s pulse. Since most of the major companies make up the indices, if they are moving higher, the economy is often seen as doing well. However, if they are falling lower, it could suggest a downturn.
The Dow Jones Industrial Average, usually known as ‘the Dow’, is made up of 30 of the largest publicly owned companies in America.
The Nasdaq includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange. With technology making up a significant percentage, this index serves as a reliable indicator of the performance of the technology sector. So this could serve as another signal to trade, as you could be more interested in technology or Artificial Ingelligence stocks.
Trading stocks doesn’t have to be much different than trading commodities or forex. If the analysis is consistent, then there should be no reason to alter your trading style.
Just remember that some stocks will be more active during different times of the day, as American and European stocks will have separate opening and closing times.
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