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Guide To Trading Stocks Online

Stock trading is the buying and selling of stocks with the objective to make a profit. There are many ways to do this, but the most common way involves buying stocks when their prices are low and selling them when they are high.

What moves stock prices?

There are several factors that move stock prices and knowing what they are is the key to being a successful stock trader. However, the general principle is that of supply and demand.

When there is a greater supply of a stock than there is demand for them, the stock price will decrease. When the opposite is true, the stock price will increase. The supply and demand of stocks is guided by the following:

The company’s performance

Companies issue stocks, and their performance has a lot to do with the price of a stock on the market. Therefore, it is crucial to examine how a company is doing if you are planning on investing in their stocks.

Some things you can look at are the company’s revenue and their profit or growth. Concrete numbers include the company’s price-to-book ratio, their price-to-earnings ratio, their growth ratio, and their dividend yield. Companies – particularly larger ones – are obliged to share progress reports throughout the year, most likely quarterly. These offer great insight into how the company is doing.

It is also important to evaluate the company’s management team and future trajectory. If the company has switched management teams or experienced a rocky relationship with the industry and shareholders, it may forebode difficult times to come. This can lead to price instability.

The overall health of the economy

Another thing that affects stock prices is the overall health of the economy in which the company is based or originates from. The overall economy affects many things: consumer confidence, interest rates, inflation rates, and investor confidence. Depending on the sector of the company you want to invest in, it can have an impact on stock prices.

For example, if you are planning on investing in the middle of a pandemic, you may have better luck investing in healthcare and telecommunications technology instead of the aviation and travel sectors.

A lot of it does come down to common sense, but it is important to realise that the real world has great implications for stock performance.

Trader sentiment

Finally, another big factor that moves stock prices is trader sentiment. Trader sentiment (or market sentiment) is the overall feeling that traders harbor towards the market or a particular stock. Even though it is difficult for one trader to move the market, if hundreds and thousands of traders feel the same way about the market, they will collectively buy and sell, which can create big ripples.

Tools and indicators to help you determine market trends

Once you know what moves stock prices, there are ways for you to properly scope out where the market is heading.

Economic reports

Reading economic reports is a sure way to ensure you stay on top of where the market is heading. Whether this is examining market movements or reading company-published annual reports, keep an eye out for numbers such as revenues, net profits, and ratios.

The news

Of course, keeping an eye on the news is another logical way of helping you determine market trends. Is the country going into a recession? Are there healthcare crises, and what is the government preoccupied with? These are all important determinants of how the markets will move. You can also keep an eye out for mergers and acquisitions.

Trader sentiment indicators

Finally, there are some strong markers of trader sentiment that allow you to gauge how the wider world feels. One of such is the Volatility Index (VIX). The VIX also goes by another name: the fear index. It tracks options prices and measures the implied volatility of markets. The greater the implied volatility, the higher the fear.

Another marker of trader sentiment is the high/low sentiment ratio. It is an indicator that involves the comparison of stocks. It marks the number of stocks heading to their highest level over the past 52 weeks (one year) and the number of stocks plummeting to their lowest level over the past 52 weeks (one year). This is a great way for stock investors to scope out the market and see what the general trends are.

3 tips for trading stocks online successfully

If you want to further maximize your chances of success when you trade stocks online, below are a few tips you can follow:

Always have a trading plan

The first is to always have a trading plan and to never place a trade that does not go with it.

A trading plan includes your trading objectives, your budget, the instruments you plan on trading, and other factors such as the time of day you will place trades and how you will do so. Having a trading plan is important because it allows you to set clear boundaries. The plan should also contain concrete and practical terms such as the most you will allow yourself to risk when trading and entry and exit points of trades.

When you have a trading plan, you are less likely to make impulsive decisions based on your emotional state. You will also be more mindful of making any trades you have not done thorough research on. This is great in both the short- and long-term, and it can help you maximize your chances of success.

Do your research

The next point is equally important, and it is to do sufficient research before making investments. This may seem like a no-brainer, but the reality is that many people often get swept up in the excitement of stock trading. They make decisions in the heat of the moment that can sour their prospects in the long run.

It is vital that you know which instruments you will trade, why you will trade them, and how much units you are willing to trade. For example, if you decide to invest in Meta stocks, you should have a clear idea of how the stock is performing in the market, and its price history, and you should make decisions based on both your own evaluation of the company and expert predictions.

Learn proper risk management techniques

In the vein of having a trading plan and doing your research, one important element you cannot neglect is risk management.

Risk management in stock trading is the steps you take to ensure you minimize your losses. They can come in the form of placing stop limits and setting parameters on your trades. They can also take the form of self-discipline – never trading more than you can afford to lose and taking care of your emotions.

Getting started on stock trading

This usually requires you to verify your identity, which you can generally do with a photo ID. You can then choose the instrument of your choice, deposit money into your trading account, and start trading. Remember that all forms of trading come with risks, and you should never trade more than you can afford to lose.

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