Online Stock Market Investing
How to Get Started Investing in the Stock Market
Traders in shares, indices, forex or commodities should always have a set of basic rules, which revolve around going with the trend, limiting losses and good money management. In other publications, these topics have been covered extensively, along with how to avoid mistakes and other important factors to watch when trading stocks.
There are, however, some commonsense rules that do not have to be applied so rigorously, which add another level of comfort within what can be a very involved process. Market makers and other brokers are not naive, and the setting of prices and spreads depends on several factors including time of the day, volatility and before and after news items. If you have a system that is not tailored to quick, intra-day moves, and your chosen timeframe is to look for results within anything up to a month, then minute by minute timing is less important than getting the overall picture correct.
On that basis you need to reduce your slippage costs as much as possible, so the time to place trades should be when the spreads are narrowest. After a while you should be used to the normal minimum spreads on most shares, and unless there is a pressing need to immediately deal, maybe on a profits warning or takeover news, then it pays to always ensure the spread is at the minimum before dealing.
This means not trading in the first few minutes of the trading day as buyers and sellers position themselves for the session. Sometimes the whole market may be marked down as a the result of a heavy fall in particular stocks overnight, but spreads might be wider because of the frenetic nature of early dealing. After a while though the spreads should usually return to normal, and you can deal more comfortably.
Some online stock market investors choose to stick with the biggest and most liquid stocks for the majority of their online stock trading.
Get to know a few stocks very closely and increase your knowledge. Many online stock market professionals focus on one area of the market, and some simply trade a handful or even just one issue, a particular commodity, such as Treasury bonds or stock market index. You will probably find that you become accustomed to the ebbs and flows of certain shares, and if you feel you are on the boil with these companies, then you have an edge.
If you decide to focus on say ten shares, you should get to know their trading ranges, average daily volume, sentiment to their particular sector, previous support and resistance levels, the tone of previous management comments and when news is due.
It goes without saying that when trading commodity stocks you need to be aware of movements in the price and direction of principal metals and crude oil. Because there are other factors in play when institutions buy or sell in the market, such as dividend payments, overall market action or takeover hopes, share price movements can sometimes rise or fall in the underlying commodity, but this is very important to each company’s overall profitability. Likewise, overall retail sales figures are important to the retail sector, which is obvious, and the health of the housing market and interest rates affect financial stocks as well.
The trend is your friend theory is a valid theme throughout swing trading, but it pays to only go long when the price offers further upside potential or there is another volume or signal, otherwise you risk buying at the top. The aim is to ride an established trend, so while it is ok to miss the first part of a move, you should not buy when a trend may be about to reverse.
Broker upgrades and newspaper tips are not always timely, since they are usually already factored into the market by the time it’s your turn to place a trade. Whilst some analysis can be excellent and thought provoking, the persons giving the advice may sometimes have a different agenda. Price and volume action is the key when trading, but of course for longer term decision making the fundamentals must be examined as well.
Next » Online Stock Trading