If you have even a little experience with the stock market, then you know the market can fluctuate quite a bit. Beginners often struggle to understand the stock market and often think of these stock market ups and downs as random. But in order to be successful in the market, you must be willing to put in the work and do your research and learn why these market changes occur. When you study the market and earn some experience, you’ll learn how to interpret these ups and downs, over time.
Learning the Market
In order to get a handle on the market, how it works, what you can expect in terms of good years, bad years, and recession frequency, you need to do your homework.
The creator of the Dow theory, Charles Dow, studied market fluctuations and learned the ups and downs of the market, teaching hundreds and thousands of people stock market tips for beginners. Every stock will fluctuate at one time or another. These fluctuations create highs and lows that are temporary. When certain stocks create sequences of highs and lows it’s trending. When a stock trends it shows that the traders and investors are in favor of certain price moves. When the trend is down, more investors want to sell than buy. When the market is up, the demand is high.
Additionally, with every stock, there’s a set number of shares outstanding. When a person wants to buy shares they have to compete with other buyers on the market for the limited amount of shares available. These shares are only available if the owner of the shares chooses to sell them. If there are no stock owners wanting to sell then the stock supply is low, which, in turn, can make opening positions very difficult for the buyer.
If you want to sell shares, the shares can only be liquidated if another buyer wants to purchase them from you. Essentially, supply must be met by market demand. In the market, demand is all about buyer interest. If there’s no one interested in purchasing the shares you’re trying to sell, then you’ll have a hard time offloading them. In cases such as these, a seller is competing with other sellers for the limited amount of buyers interested.
Rules of the Trade
Facilitating trade is the goal of any market. The market fluctuations are directly caused by the imbalance of supply and demand. The price of shares can remain consistent if the supply and demand are equal. But in the event that there’s a lot of shares available, but little interest, then these stocks will end up dipping in price. On the other hand, if the shares are in high demand, then the buyer will have to pay more in order to compete with other buyers for the shares available.
What is Sentiment?
Market sentiment is the relationship between supply and demand. When the stocks are not in demand and the prices are dipping, the sentiment is negative, while the sentiment is mostly positive when shares are in high demand and the price begins to rise. When the sentiment is positive, it can lead to more investors wanting to buy and fewer shareowners wanting to sell.
When market sentiment is extremely positive, a drop in the market is usually forthcoming. The seasoned investor will monitor the market, trading opposite the prevailing stock.
When most traders in the market share a similar opinion, there tend to be more options for the skeptical trader to also jump on the bandwagon, causing a trend. And, as you know what goes up, must come down.
What are the Risks?
When you’re studying the market trends, you must watch the movements and think in terms of what your ultimate goal is. You must also calculate the risks involved before you make a move. It’s important to know the amount of risk you can tolerate in terms of fluctuations and how much you hope to earn in a certain amount of time.
The answers to these questions can help to determine the type of trades you make, especially if you plan on using your nest egg to make a profit and live on these profits once you’ve retired.
You must determine the allocation to the risky assets in your portfolio versus your income. Next, you must measure the expected return in your portfolio to benchmarks you have set annually. You should hit these benchmarks pretty closely if you’re using a type of passive approach such as asset class investing. If you’re using an active management approach such as market timing or stock picking then you can expect to miss those benchmarks on a regular basis.
If you’d like more guidance regarding how to expertly monitor market trends, programs such as Forex Trendy can help you navigate the forex market, if you’ve decided trading in currency pairs is more up your alley.
Additionally, automated trading programs, such as the Wall Street Forex Robot can allow you to make automated trades so you can earn round the clock, even when you’re sleeping.
Short-Term Goals in the Stock Market
Most pros will tell you that you should never put your short-term goals at risk. Your long-term investments don’t have to be monitored daily or even monthly. Watching long-term goals too closely simply indicates you’re unsure of your moves and may need the guidance and expertise of a pro.