abc’s of stock trading

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By www.ProfitableTradingTips.com

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By www.ProfitableTradingTips.com

There is always a degree of

inefficiency in the stock market.

Traders seek to anticipate price

changes and by their trades

create changes.

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A herd mentality often

accompanies but bull and bear

markets.

Just what does a stock trader do

to derive an income from the

markets?

Here are the ABCs of stock

trading, the basics that help

traders limit risk while searching

for profits.

The basic price of a stock is

determined by how much money

a company makes after all

expenses and it has to do with

expectation of value.

In other words will the company

be able to make money and

increase how much money it

makes year by year?

This later quality is called

intrinsic value.

There are companies that

reliably make the same sort of

money year after year with the

same slow and steady increase in

their income streams.

These stocks typically have very

stable prices.

Then there are stocks like

biotech startups that are not

making at money but have

potential cancer cures in the

research pipeline.

Since fundamentals ultimately

determine value and one stock is

very stable so is its price.

The other stock will fluctuate as

news of its progress developing a

new product surfaces.

The first of our ABC of stock

trading is to learn how to

determine how to calculate

intrinsic stock value as a base for

just how much a stock should be

worth.

There are small companies that

few if any analysts follow.

Thus these companies often

surprise the market when they

post their quarterly profits.

The second of our ABCs of stock

trading is to learn to seek out

stocks that are not commonly

followed by most other traders.

When there is good news in the

pipeline a trader can buy such a

stock at a low price and sell

when good news drives the stock

up.

Long ago in Japan when there

were still Samurai there were

men who traded rice in the rice

markets.

Smart traders charted the prices

of rice day by day, week by

week, month by month and year

by year.

It became clear that certain

price patterns repeated

themselves.

It also became clear that it was

possible to simply consult the

most recent trading patterns and

predict where prices would go

next.

This was possible without even

thinking about fundamental

factors that drove rice prices.

This approach became known as

Japanese Candlestick trading.

It is one of the early forms of

technical analysis and is used to

day in trading stocks,

commodities and currencies.

This is the third of our ABCs of

stock trading.

Many traders simply day trade

stocks using statistical pattern

analysis.

They use pattern analysis to

determine whether to buy and

when to sell.

They extract small profits from

the market as it stutters up and

down throughout the day.