abc’s of stock trading
TRANSCRIPT
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.
Smart traders buy and sell in
such a way as to make money
trading stocks.
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.
Fundamentals Ultimately
Determine Value
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.
This approach takes a little
research but can be a key
to successful stock trading.
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.