Imagine, that you were trading in Forex and suddenly the news about large option expiry comes out. How should you react to this news and what does it mean for the Forex market?
Advantages of the stock market
When people hear about stocks, they imagine the Wall Street, stock exchanges with the fuss, thousands of shouting people that try to get a piece of the pie. Admit you think the same! But is it really like that? Is there another possibility to work with stocks? There is. And in this article, we will tell you how to trade stocks without difficulties and stress.
There are two options: either you buy real stocks or you trade a price change.
Buying real stocks is quite a difficult deal. Firstly, you need to have a lot of money. Secondly, you need to have a representative who will help you with all the procedures and will act for you. Or what is more stressful you will have to participate in real deals and stress a lot trying to grab stocks at a perfect price.
Now you have a question: what if I don’t want to deal with all these difficulties and I don’t have that much money to buy stocks? In this case, you have a great opportunity.
You won’t get real shares but you can speculate on the movement of prices on the stock market. When trading this way, you do not actually buy stocks, but instead, you need to predict the price and trade on your forecasts. You will place an order to buy or sell and a broker will make a deal on behalf of you.
Maybe you would like to own shares and you are sad now, but you shouldn’t be. The first advantage is you don’t need a big budget to start. Moreover, a broker will always help you by offering a good leverage. Secondly, you are out of stress. You have time to analyze, take a decision and then open a position. And what is more attractive, you can earn both on a rise and a fall of stock prices.
What affects stock prices.
Every market has its own criteria that determine its direction. There are four main factors you need to follow to forecast stock moves successfully.
1. Company earnings.
It’s not a surprise that the amount the company earns affects the value of its stocks. Earnings are a profit of the company. This profit determines the financial health of it.
How to follow. In the US, publicly traded companies are required by law to report their quarterly financial results.
How to trade. Before a company makes a release, analysts predict results. All forecasts are gathered by research companies in a consensus earnings estimate. Check the estimate and follow the actual figures. If the actual data outperforms the forecast, prices will go up. In the case of the weak earnings release, they will fall.
2. Internal issues.
One of the most important factors is internal issues. Problems and uncertainties of a company will affect the value of its stocks as well. Changes in the CEO, speeches, and comments of company’s members, potential mergers and acquisitions will create a high volatility of the stocks.
Let’s consider an example. Do you remember Elon Musk tweeted he wanted to take Tesla private at $420? After that tweet, the stocks of Tesla surged significantly and NASDAQ halted Tesla stocks. The funniest thing is that it was just a message on twitter but it shook the market dramatically.
Supply and demand (S/D) point may be added as a part of the internal issues.
S/D factor is considered by traders and analysts no matter what market they analyze. If a company declares it buys shares back, it will encourage a rise of stock prices. If a company is going to offer more shares, the prices may go down.
How to follow. Check news related to the company whose shares you would like to trade.
How to trade. Estimate the effect of the news, wait for the market reaction and follow a market sentiment.
3. Industry news.
Not only an internal environment of a company affects the value of its stocks, but the external one as well. News regarding a specific sector may affect companies’ stocks a lot. That’s why traders need to check industry news. For example, if you want to trade stocks of Facebook, you should check the news on the technology sector.
How to follow. Check news related to the sector you chose.
How to trade. Determine whether the news is important or not and what impact it may have on the company. Open positions following the market sentiment.
4. Analyst ratings.
Analysts consider many factors that affect stock prices. Then they provide recommendations on whether to buy, sell or hold stocks. Even if you don’t buy real stocks, such recommendations will help you to trade on the price difference because you can catch the market sentiment.
How to follow. All you need to do is to check recommendation on trust-worthy sources.
How to use. Analysts’ ratings are highly useful materials. If analysts give a deep explanation of their forecasts mentioning important factors that affect the price, it’s a big fortune. Firstly, you don’t need to research by yourself. Secondly, you can use that information to make your own predictions. Moreover, as we mentioned above, using recommendations you will be able to predict the market sentiment and use it in your favor.
One small tip: always remember about the human factor. Don’t follow forecasts blindly. We all make mistakes and forecasts may be wrong as well. It’s better to combine predictions of analysts with your own ones.
How to predict the price?
The stock market differs in factors that affect it but doesn’t differ in ways of analyzing and predicting market moves. Have you ever tried to trade currency pairs or commodities? Have you used fundamental analysis or technical indicators? If you have, you won’t have any difficulties trading stocks. Place your favorite technical indicators and follow fundamental factors.
Why you should invest in the stock market.
Stocks are a subject to a high volatility and you can use it in your favor. The high volatility is the possibility to earn a lot. However, don’t forget about big losses the high volatility can bring. To be successful on the stock market, you just need to follow the market sentiment, be up to date to not miss releases that may affect the price, react fast to crucial news and of course, use stop losses.
The stock market is related to such big names as Apple, Amazon, Facebook, Google and etc. Don’t you feel proud of being closer to such giants? And of course, a chance to become a guru of the stock trading is attractive, isn’t it?
To conclude, we can say that trading price differences on the stock markets is an exciting option. Firstly, you always can earn no matter if the price goes up or down. Secondly, the market is highly volatile that gives you an opportunity to boost your profit significantly. Thirdly, it’s an interesting market full of stocks of world giants that makes you closer to Wall Street!
Have you ever counted stars while looking for a constellation? In trading, you can do the same by looking at the charts and patterns.
Let’s find out what is scaling and how you need to apply it correctly to manage your risks.