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A Beginners Guide To Stock Market Trading

Aug 17, 2007
A stock represents a portion of ownership in a company. The value of stocks are proportionate to the growth and sucess of the companies they represent. Values of stocks are not chosen arbitrarily but are based on verifiable financial data such as sales figures, assets and growth. This reliability makes the stock market a good choice for long term investing - well-run companies should continue to grow and provide dividends for their stockholders.

1. Short Term Investing

If you take a look at any stock figure, you will see that it fluctuates - a lot! This can mean that there are opportunities for investors that don't want a long term commitment of their money. News reports, government announcements about the economy, and even rumours can cause investors to become nervous or to suspect that a company will increase in value.

2. The Bandwagon Effect

When a stock price starts to fall or rise, other investors will jump on the bandwagon, causing an even faster acceleration (or decelleration) in price. Eventually the market will correct itself, but for savvy short-term investors who watch the market closely, these fluctuations can offer opportunities for profit to be made.

3. Position Traders

The time needed to study the stock market can be as little as 30 minutes a day and can be done after regular work hours. Traders of this type generally don't hold onto their stocks for more than six months. These traders carefully watch for fundamental changes in value of a stock. This information can be gleaned from financial reports and industry analyses. Position trading does not require a great deal of time. An examination of daily reports is enough to plan trading strategies. This type of trading is ideal for those who invest in the stock market to supplement their income.

4. Swing Traders

Holding their stocks for far shorter periods of time, swing traders look for changes in the market that are driven more by emotion than fundamental value. This type of trading requires more time than position trading but the payback is often greater. Swing traders usually spend about 2 hours a day researching stocks. They need to be able to identify trends and pick out trading opportunities.

5. Day Traders

Day trading refers to buying and selling stock in very short periods of time - often as short as a few minutes. In order to be this kind of trader you need to have a huge wealth of information about the industry, and a very strong ability to reason and be analytical. This is a full time profession and you can expect to be studying the market for as much as eight hours per day.
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