Trade like A Stock Market Wizard

How to achieve super performance in stocks in any

market
By

Cassandra Nauvall
 © Copyright 2020 by (Cassandra nauvall) - All rights reserved.
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Table of contents
INTRODUCTION

CHAPTER 1: UNDERSTANDING TRADE

1.1 Stock Trading

1.2 How Do Stocks Function?

1.3 Classes of Stocks

1.4 Need of Businesses to be Listed on the Stock Market

1.5 Risks of the Stock Trade

CHAPTER 2: TRADING STYLES

2.1 News Trading

2.2 End of Day Trading

2.3 Swing Trading

2.4 Day Trading

2.5 Trend Trading

2.6 Scalping

CHAPTER 3: HOW STOCK MARKET WORKS

3.1 Stock Market

3.2 Stock Market Functions

3.3 How Money is Made by Stock Exchanges

3.4 The Stock Market Significance

CHAPTER 4: HOW TO TRADE SUCCESSFULLY

4.1 How to Buy Stocks and Sell Them on Your Own

4.2 How Stocks are Traded

4.3 How to Pick the Right Stocks

4.4 When to Begin

4.5 How to Survive Stock Trading

CHAPTER 5: RISK MANAGEMENT TECHNIQUES

5.1 What Is Trading Risk Management?

5.2 Risk Management Tips

Conclusion
Introduction
Stock trading is the selling and buying of stocks in the stock market. When you
purchase stocks of a company, you own a part of it. Trading stocks can be very
difficult, and it needs experience and a clear understanding of the market. Before
making any trading decisions, you should also aim to stay up to date with the
latest news and trends. Market sentiment can change rapidly, and it takes
perception and insight to be able to respond to this shift.

By staying up to date with new events and knowing how they affect markets,
these skills can be built. When trading CFDs on the, there are different forms of
trading orders that can be placed, including market orders, future orders, and
stop orders. It is conducted at the current market price when a transaction is
executed at "market order." When the instrument reaches a certain price, defined
by you, you may also ask to open a spot. This is referred to as potential orders
for (pending orders).

In addition, you can opt to manually close your positions or set stops so that the
device closes them with stop orders automatically. If you set a limit stop (close
to profit), your trade will close in order to help you lock profits at the rate you
listed. You may also set a stop loss (close at a loss) to determine a closing rate in
order to prevent further losses.

The stop will be activated until the selected rate is reached or passed (as
sometimes the price will 'gap' and travel beyond the specified level), and the
location will be closed automatically at the first available price. There is no
guarantee that a place with a "close at a loss" set would close due to slippage at
the exact price level stated. On the Plus500 platform, this feature is free of
charge.

Traders should take the time to consider the basics of the stock they want to sell,
as well as why the way they do and what causes those moves is pushed by
markets. You should therefore know when to enter a trade as well as when to
leave your place.

The timing of when to exit and enter your positions depends on many variables,
like your general trading strategy, your risk-reward ratio, your risk tolerance, the
volatility of the instrument, and any new developments in the relevant stock. To
test your strategies and get some training using the platform, use the trial
account, and then begin trading with real money until you feel relaxed.

You do not take considerable chances when you take the plunge. While not
losing your money, this will help you set up your trading strategies. It's
important to note while trading CFDs on a real money account that you can only
trade with money that you can bear to lose. Make your trading plan, budget your
finances before starting trading. To make better decisions, use graphs, market
news because you can lose all with wrong decisions.
Chapter 1: Understanding Trade
Trade is a basic economic term, including the purchase and sale of goods and
services, the price paid to the seller by the buyer, or the exchange of goods or
services between the parties. Trade may take place among producers and
consumers within an economy. International trade allows countries to develop
markets that otherwise would not have been open to them for both goods and
services. This is why an American customer can choose between a Japanese,
German, or American vehicle. As a result of foreign trade, there is more
competition in the industry and thus more affordable prices, taking the customer
back home to a cheaper product. Trading in capital markets refers to the
acquisition and sale of shares, such as the purchase of securities on the New
York Stock Exchange floor (NYSE)

How trade works

Trade broadly refers to transactions ranging in scope from the exchange of

baseball cards between collectors to international policies setting protocols for
imports and exports between countries. Trading is facilitated by three main types
of exchanges, regardless of the complexity of the transaction.

Free trade between countries enables customers and nations to be open to goods
and services that are not available in their own countries. On the international
market, almost any kind of product can be found: food, clothing, spare parts, oil,
jewelry, wine, stocks, currencies, and water. Services: tourism, finance,
consultancy, and transportation are also traded. An export is a good or service
that is sold on the world market, and an import is a product that is purchased on
the world market. In a country's current account, imports and exports are
compensated for in the balance of payments.

In addition to growing productivity, international trade enables countries to

engage in a global economy, promoting foreign direct investment (FDI)
opportunities, which is the sum of money that individuals invest in foreign
companies and other properties. Thus, economies can, in principle, develop more
effective and can become competitive economic participants more easily. For the
receiving nation, FDI is a way of entering the country through foreign currency
and expertise. This raises the level of employment and, in theory, contributes to
increases in the gross domestic product. FDI provides market expansion and
growth for the investor, implying higher sales.

A trade is a security exchange for "cash" in finance, usually a short-dated

promise to pay in the currency of the nation where the 'exchange' is located: A
financial instrument must be established by the State (which regulates it) and
must be registered by the owner of the instrument with the State Regulator (who
issues it). The owner, in this situation, is called: issuer of the financial
instrument.

The name of the person seeking the instrument is the claimant. Investments in a
company are known as stocks. When you own a stock, you own a portion of the
company from which the stock originated. For that reason, because you own a
small part of the company, stocks are often referred to as' equity.' Depending on
how the business is doing, stocks fluctuate in price. For instance, if Company A
has just released an incredible new product that sells like crazy, the stock prices
for Company A will increase. Alternatively, if Company A experiences declining
revenue, their inventories would also possibly decline.

Advantages : You can really make a lot of money if your stock is good and the
company is flourishing. The cash is liquid as well. This implies that by selling
your stock, you can get it at any time.

Disadvantages : If a business is doing poorly, your stock is also doing so. Since
stock is not diversified, it can be a misfortune for you (besides, you can easily
decrease your risk by picking bigger, solid companies). It is good to assume that
it is almost impossible to game the market, so the lay investor is not worth
attempting. Such are the basics of what stocks are.

Only after you've got the rest of your financial house in order can you exchange
stocks. That means automating your finance system, maxing out your 401k and
Roth IRA, and creating an emergency fund. It's perfectly cool to spend 5% of
your profits in stocks after you've done that.

1.1 Stock Trading

The selling and buying of stock for money are what it really refers to. So if the
equity is purchased or sold, that's called trading. There are two ways you can
exchange stocks are available:

Trading floor : This is the kind of trade that you see with all the people crying
on the floor of the exchange in movies and television. It's a bit of a complicated
procedure, but here how it works at its core: you tell your broker to buy stock
from a business, the broker sends a person to the floor to search for a trader
willing to sell the shares to you, they settle on a price, and you get the shares.

Trading online . For individual investors, this is a much more intuitive method.
It most often comes in the form of online brokerage platforms that allow you to
issue a trade during trading hours immediately. Don't count on screaming floor
traders to pick up shares for you anymore.

Stocks are a way of creating wealth. They are an investment that implies that
you own a stake in the stock issuing firm. Stocks are how average individuals
invest in some of the world's most profitable businesses. Stocks are a way for
businesses to raise capital to finance development, goods, and other initiatives.

You're basically purchasing an equity stake of that company when you purchase
the stock of a company. Does that mean you get to sit at Apple's next shareholder
meeting next to Tim Cook? Oh, no. But in most situations, if you want to
exercise it, it does mean that you have the right to vote at certain meetings.

The key reason investors own stock, however, is to gain a return on their
investment. In general, the return comes in two possible ways: The price of the
stock appreciates, meaning it goes up. If you'd like, you can then sell the stock
for a profit.

The inventory pays dividends. All stocks do not pay dividends, but many do.
Dividends are distributions taken out of the company's earnings to shareholders,
and they are usually paid quarterly.

The normal annual stock market return is 10 percent over the long term; the
average falls to between seven percent and eight percent after inflation
adjustment. That means that, 30 years ago, $1,000 invested in stocks will be
worth over $8,000 today.
It is essential to remember that the historical return is an average of all S&P 500
stocks, a selection of around 500 of the largest companies in the United States. It
doesn't mean that that kind of return was posted by every stock; some posted
much less or even fully failed. Others have posted even higher returns.

That is why it is good not to buy stock in only one business but to build a well-
rounded portfolio that has stocks in multiple businesses across different sectors
and geographies.

1.2 How Do Stocks Function?

To raise capital, businesses sell shares in their company. They then use the
money for different initiatives: a business may use the cash raised from a stock
offering to finance new products or product lines, invest in growth, increase its
activities, or pay off debt.

When the stock of a company is on the market, it can be purchased and sold to
investors. Via a mechanism called an initial public offering or IPO, companies
usually begin to issue shares of their stock. Once the stock of a company is on
the market, it can be purchased and sold to investors. If you plan to purchase a
stock, you will always buy it from another investor who wants to sell the stock,
rather than from the company itself. Similarly, if you want to sell a stock, sell it
to another investor who wants to buy it.

These transactions are done through a stock exchange, with each investor
represented by a broker. Many investors use online stock brokers these days,
purchasing and selling stocks through the trading network of the broker, which
ties them to exchanges. You will need one to buy stocks if you do not have a
brokerage account.

When you own stocks, what does that mean?

Do many investors own what is referred to as common stock? Common stock

comes with the power to vote and can pay dividends to investors. There are other
kinds of stocks that function a bit differently, like preferred stocks.

Again, owning a stock does not mean that inside the company, you bear a lot of
weight or that you get to rub elbows with company bigwigs. It also does not
indicate that you own a portion of the company's assets; you are not entitled to a
parking spot in the company lot or a desk at the headquarters of the company.

In essence, what you own is a share of the company's gains, and it should be said
its losses. The aim, of course, is to increase the company's value and, as a result,
the value of its stock when you are a shareholder.

But while stocks have a history of high returns overall, they also come with a
risk: instead of going down in value, it is entirely possible that a stock in your
portfolio will go down in value. For a number of factors, stock prices fluctuate,
from general market uncertainty to company-specific incidents, such as a contact
crisis or a product recall.

Without regular buying or selling, many long-term investors hang on to stocks

for years, and although they see those stocks fluctuate over time, their total
portfolio goes up in value over the long term. Via mutual funds or index funds
that pool several investments together, these investors also own stocks. Via a
mutual fund or index fund, you can buy a wide section of the stock market, such
as a stake in all the companies in the S&P 500.

1.3 Classes of Stocks

Usually, investors who purchase stocks do so for one of two reasons: they expect
that the price will increase and allow them to sell the stock at a profit, or they
plan to receive as investment income the dividends paid on the stock. Of course,
at least to some degree, some stocks can meet both objectives, but most stocks
can be grouped into one of these classes:

Growth,
Revenue, or
Value.

This information can be used by those who understand the features of the type of
stock to develop their portfolios more efficiently.
1. Stocks for growth

As the name suggests, by definition, growth firms are those that have
considerable growth potential in the near future. Growth firms will currently
expand at a faster pace than the overall markets and therefore commit much of
their current sales to further growth. There are growing companies in every field
of the industry, but they are more prominent in some fields, such as technology,
renewable energy, and biotechnology.

Most growth stocks tend to be young companies with revolutionary products that
are expected in the future to have a significant impact on the industry, although
there are exceptions. Many growth firms are actually very well-managed
enterprises with strong business models that have capitalized on the demand for
their goods. Growth stocks may offer large returns on capital, but many of them
are smaller, less stable firms that could undergo significant price drops as well.

An example of a company with growth:

This net juggernaut continues to include features, open new markets, and take
clients from other retail-oriented businesses. Amazon.Com Inc. (AMZN)
Compared to the SP-500 trailing P/E of 24.6.1 2 2 E, the 2018 trailing P/E of 83
reflects this astounding growth potential.

2. Stocks of value

For those who do their homework, undervalued enterprises may also provide
long-term income. A stock of value trades at a price below where it appears that
it should be based on its financial condition and technical measures of trading. It
may have high dividend payout ratios, such as price-to-book or price-earnings
ratios, or low financial ratios. Due to market opinion about causes that have
nothing to do with the actual operations of the company, the stock price could
also have fallen.

For example, if the company's CEO becomes involved in a serious personal

scandal, the stock price of a well-run, financially stable company will drop
dramatically for a short period of time. Smart investors recognize that now is a
good time to purchase the stock, as the public will soon forget the incident and
most likely return the price to its previous level.

The definition of what exactly a good value is for a given stock is, of course,
rather subjective and differs according to the theory and point of view of the
investor. Typically, value stocks are perceived to bear less risk than stocks of
growth since they are typically those of larger, more developed businesses. Their
rates, however, do not always return, as predicted, to their previous higher levels.

An example of a stock that is of good value:

Cardinal Health Inc. (CAH)-The stock appeared undervalued in 2019 because it

traded at a 4-year low, while EPS rose dramatically from $3.84 in 2014 to an
approximate $5.00 in the fiscal year 2018. This is better than the estimated 3.14
percent average earnings growth of the general market for the next 7 to 10 years.

3. Stocks of profits

To bolster their fixed-income portfolios with dividend yields, which usually

surpass those of guaranteed instruments such as Treasury securities or CDs,
investors look at income stocks. There are two main types of stocks for profits.

Utility stocks are common stocks that have remained reasonably constant in
price historically but typically pay attractive dividends.

Hybrid securities: that act more like bonds than stocks are preferred stocks.
They also have a call or have other features put in, but they often pay
competitive returns.

Although income stocks can be an attractive option for investors who are
reluctant to gamble their principal, as interest rates increase, their values may
decline.

One example of a strong stock of profits:

AT&T (T)-The business is financially sound, bears a fair amount of debt, and
currently pays a 6.2 percent .5 percent annual dividend yield.
 In these types, how to find stocks

There is no best way to discover particular kinds of stocks. Those who want
creation should look at investing websites or bulletin boards for growth company
lists, then do their own homework on them. In each of the three groups, several
analysts often publish blogs and newsletters that tout stocks.

The dividend yields on common and preferred offers can be measured by

investors looking for income, and then the sum of security risk can be evaluated.
Stock screening systems that investors may use to scan for stocks based on
specific parameters, such as dividend yields or financial ratios, are also
available.

A return on capital from future development, current undervaluation, or dividend

income may be given by stocks. A variation of these is provided by several
stocks (such as AT&T), and wise investors know that dividends will make a big
difference in the overall return they get.

What are shares, equities, and stocks?

The terminology used to describe units of equity of one or more firms are
securities, bonds, and equities. If a dividend payment is made, the owner, known
as a shareholder, will also be entitled to part of the company's profits, as well as
voting rights. The terms are sometimes used interchangeably in finance,
although there are some technical variations that may create confusion between
them.

After the repayment of any debt, equity is the term for a complete ownership
stake in the company, whereas a share or stock describes a single unit of
ownership. Typically, the plural term shares refer to units of ownership in a
single company, while equities and stocks are words commonly used to refer to
various companies' portions of ownership.

The weight of a shareholder's vote and the number of dividends they earn will
depend on the number and portion of the shares issued by a company. For
instance, if a business has 10,000 shares in circulation, and a person owns 1,000
shares, it could be said that they have a 10 percent stake in the business.
The acquisition and sale of stocks, bonds, and equities function in a similar
fashion to a marketplace where the parties agree to an asset selling price. The
trading of publicly traded shares is facilitated by entities known as stock
exchanges, requiring a company to perform its initial public offering (IPO).

When you invest or buy in shares, you buy the underlying stock yourself and try
to keep it for the long term. If a business expands and its valuation rises, the
value of its shares will also increase, and you will be able to sell your stock for a
profit. You'd earn dividends and the rights of voters in the meantime. However,
the share price will also decline if the company declined in value, and positions
would result in a loss.

Alternatively, you would be speculating about the potential value of the asset
without taking control of it if you were to sell shares. For more short-term
tactics, this is widely used. You will be able to shorten a stock more quickly than
the conventional methods of short-selling, but you would not own the underlying
shares. So not just a growing one, you might benefit from a declining share
price.

1.4 Need of Businesses to be Listed on the Stock Market

In order to raise money by tapping into the public equity market by selling their
securities to private investors and institutions, the primary reason why
businesses list their stocks is. This is an alternative form of privately obtaining
capital from venture capitalists.

Many firms will be listed on a domestic exchange. In the UK, for instance, the
majority of shares are listed on the London Stock Exchange (LSE) or the
Alternative Investment Market (AIM). In order to take advantage of foreign
investment, however, it is becoming increasingly popular for companies to have
several listings. The lowest number of shares that a company will issue is one-
this may be the case as there is only a single owner of the entire company. There
is no standardized limit, however, on how many shares a corporation can issue,
so this will vary from business to business. When businesses issue more stocks
or buy back shares from investors, the number of available shares may also
change over time.
 How much is worth a stock?

Depending on whether you look at its equal value or its market value, a share's
worth can vary. The fair value is the intrinsic price of a stock relied on the
economics of the business, while the market value is the price that people are
willing to pay for the stock at present.

The fair value of a stock is much less than the market value, as demand, which
does not always express the fundamentals of a share, is heavily influenced by the
latter. If the demand for a share goes up while the supply stays steady, so as
individuals are willing to pay more, the share price will increase.

Why exchange shares?

Trading shares through derivative products are becoming increasingly popular

because it allows people to go short as well as long, allowing you the
opportunity to benefit from markets that decline in price, not just those that
increase. This is because the underlying asset has no obligation to own.

You will only need to put down a fraction of the required money known as
margin when you trade stocks through leveraged products such as CFDs. This is
an immense attraction for trading stock, as it suggests that less capital is needed
in advance to achieve full market exposure. Although leverage has considerable
advantages, risks often come with it. Also, in accordance with the company's
strategy or announcement, there is the opportunity to obtain dividend payments.

1.5 Risks of the Stock Trade

Due to leverage, the risks presented by dealing with Contract for Difference
(CFD) stocks are substantially different. Both your gains and losses are
measured on the full value of your position as you sell on margin, rather than
this initial outlay. This means that you can magnify your gains, but you can also
magnify your losses.

There are instruments, however, that traders can use to manage this risk. Stop-
losses, for example, allow traders to identify their exit point for trades is moving
against them, while restricted orders can close a trade after the market moves a
certain amount for the benefit of traders.

Also, you will be exposed to an infinite downside potential if you decide to

shorten a stock, either historically with a broker or with derivative products like
CFD. There is no limit on how much the share price will increase, in principle.

You may use derivative products like CFDs to bet on the price of an underlying
share. It is good to understand both the advantages of using these products and
the risks associated with them before you begin to trade shares.

If you feel you have an understanding of how CFDs operate, by opening a live
account, you can begin to exchange shares. Alternatively, in a risk-free
environment, you could first open a demo account to practice trading stock.

Stock trader

In the capital markets, a stock trader is an investor. Professionals trading on

behalf of a financial firm or individuals trading on their own behalf may be stock
traders. In different ways, stock traders engage in the financial markets.

Via a brokerage or other intermediary, individual traders, sometimes referred to

as retail traders, often buy and sell securities. Administrative investment firms,
portfolio managers, pension funds, or hedge funds are also employed by retail
traders. As a consequence, because their trading is far larger than that of retail
traders, institutional traders may have a greater impact on the markets. To
become a stock trader requires an investment of money and time, as well as
market analysis and understanding.

Understanding stock traders

Stock traders are individuals who exchange shares for equity. Their primary
purpose is to buy and sell shares in various businesses to try to benefit for
themselves or for their buyers from short-term profits from stock price
fluctuations.

As they provide much-needed liquidity, traders play an important role in the

market, which benefits both investors and other traders. Liquidity implies that
there is a sufficient amount of trading on the market, as well as buyers and
sellers so that stocks can be quickly bought or sold.

Factors on which stock traders prefer to concentrate include:

Supply and demand : By observing how rates and money shift in the economy,
traders track their trades within a single day.

Price patterns : To assess the direction a stock will shift, traders often use
technical analysis. In order to get an understanding as to how stocks will do in
the future, technical analysis uses different metrics to evaluate past market trends
and patterns.

Traders tend to fall into three distinct groups, but there are several trading styles:
educated, uninformed, and intuitive traders.

Informed traders

It is possible to identify knowledgeable traders as fundamental and technical

traders and make trades that are built to beat the wider market. Earnings,
economic data, and financial ratios may be the subject of a fundamental trader.
Using this research to predict how well or bad news would affect certain stocks
and industries, a fundamental trader may initiate trades. On the other hand,
technical traders rely on charts, moving averages, trends, and momentum to
make key choices.

Uninformed traders

The opposite approach to educated traders is taken by uninformed traders, and

they are often called noise traders. Uninformed traders are not acting on
fundamental research at the moment, but rather the noise or goings-on in the
markets. Noise is synonymous with price action or price movement. Uninformed
traders often make choices based on uncertainty and seek to capitalize on it for
economic gain. Some noise merchants, however, often use scientific research.

Intuitive traders
Traders who are intuitive strive to sharpen and use their intuition to find ways to
conduct a deal; although they can use instruments such as graphs and study
reports, they typically rely on their own experience. For instance, intuitive
traders may have experience of seeing how major players, events, and mergers
affect the markets, leading them to understand and probably trade them.

Individual trading of stocks

During stock trading, individuals can be very effective. There is a range of stock
trading strategies and techniques for individuals that are targeted. Nadex, E-
Trade, Schwab, and Merrill Edge have trading sites.

One investment technique that can be extremely lucrative for individuals is

selling penny stocks. Stocks may be called penny stocks with values of up to $5.
At low rates, traders can purchase vast amounts of penny stocks, creating
essential market profits. Penny inventories normally trade with transactions on
over-the-counter markets that can be easily facilitated via discount brokerage
platforms.

Institutional trade in stocks

In order to gain money, institutional stock traders can have their own capital
portfolios. Usually, these traders are known for their business knowledge and
willingness to benefit from opportunities for arbitrage. In the financial crisis of
2008, which ultimately led to new Dodd-Frank rules and, specifically, the
Volcker Rule, this form of proprietary trade was a factor.

There is much less latitude for market dealing for retail purchase traders. On
behalf of management investment firms and other licensed fund investments,
Buy-side traders are accountable for transactions. These funds have various
targets, ranging from regular indexing to strategies focused on long or short and
arbitrage. Buy-side traders are specialized in trading the securities held within
the fund for which they are seeking market transactions.

Numerous traders often work for alternative fund managers, who are also often
responsible for a substantial portion of trading in market arbitrage. Hedge funds
and private capital managers may have alternative managers. A large range of
stocks and financial instruments are actively traded on a regular basis by these
investment firms.
Chapter 2: Trading Styles
Trading is all about the regular buying and sale of different financial instruments
with the intention of making gains from the market movements. However, it is
important to gain knowledge of the fundamental styles of trading before entering
the trading sector, which allows the trader to handle risks and progress towards
achieving the long-term objective of becoming a well-skilled trader. There's a lot
of misconceptions about the kinds of traders and types of trading. A type of
exchange depends on the discretion, concentration, data used, location quantity,
and trade frequency of the trader's operation.

2.1 News Trading

No single technique exists for trading the news. When the news hits, as traders
digest the result against market expectations, the price tends to spike in one
direction or have a subdued reaction to the results. There are two main
approaches to trading the news, understanding this:

a) Having a directional bias

(b) Having a non-directional bias

Directional bias

Having a directional bias means that after the news article is published, you
expect the market to move in a certain direction. It is good to know what news
stories are about when searching for a trade opportunity in a certain direction,
which will cause the market to shift.

Consensus vs. actual number

There are experts who come up with some sort of prediction on what figures will
be published several days or even weeks before a news story comes out. This
number will be different among different observers; in general, there will be a
common number that a majority of them agree on. A consensus is called this
number. The number that is given is called the actual number when a news
article is published.
"Buy the rumor, sell on the news."

This is a common term used in the forex market because it sometimes seems like
the trend doesn't fit what the report will lead you to believe when a news report
is published.

Let's assume, for instance, that the U.S. unemployment rate is anticipated to rise.
Imagine that the unemployment rate was at 8.8 percent last month, and the
consensus is 9.0 percent for this upcoming report. With a 9.0% consensus, this
means that all major market participants expect a weaker U.S. economy and, as a
consequence, a weaker dollar. So with this assumption, major market players
won't wait until the report is published.

Actually published to start acting on a role being taken. They would go ahead
and start selling off their dollars for other currencies before the actual number is
issued. Now, let's assume that the real unemployment rate is published, and 9.0%
is stated as planned.

"You see this as a retail trader and think, "Okay, this is bad news for the U.S. It's
time to cut back on the dollar!"

However, you see that the markets are not necessarily going in the direction you
thought they would when you go to your trading platform to begin selling the
dollar. It's actually going up! This is because before the news report even came
out, the big players have already adjusted their positions and may now take
profits after the run-up to the news event.

Let's reference this scenario now, except this time, and assume that an 8.0%
unemployment rate was published in the actual study. Because of the consensus,
the market participants believed the unemployment rate would increase to 9.0
percent, but instead, the study revealed that the rate actually dropped, indicating
support for the dollar.

A massive dollar rally around the board would be what you'd see on your maps
because the major market players didn't expect this to happen. Now that the
study is published and it says something entirely different than what they
thought, they are all trying to change their positions as quickly as possible. This
will also happen if an unemployment rate of 10.0 percent was published in the
real survey.

The only difference is that it would drop like a rock instead of the dollar
rallying! Since the market consensus was 9.0 percent, but the actual report
showed a bigger 10.0 percent unemployment rate, the major players will sell off
more of their dollars because the U.S. seems a lot weaker now than when the
predictions were first published.

You can better calculate the news stories that can ultimately cause the market to
shift and in what direction, and it is necessary to keep track of the market
consensus and the actual figures.

Non-directional bias

The non-directional bias approach is a more popular news-trading strategy. This

approach ignores a directional bias and simply plays on the fact that a major
news report is going to generate a big move. Which way the forex market moves
don't matter. When it does, we just want to be there!

What this implies is that you have a plan in place for entering that trade once the
market moves in either direction. You have no prejudice as to whether the price
will go up or down, hence the name of non-directional prejudice.

2.2 End of Day Trading

Trading at the end of the day simply means making trading decisions very close
to or after the markets are closed. In essence, it's the opposite of day-trading.
Whereas day traders watch charts all day, whenever they choose opening and
closing trades, end-of-day traders typically trade at close or open. They use the
trading day to do their analysis and build strategies instead of watching the
market throughout the day. For several consecutive days, weeks, or months,
trades are often held.

Not all end of day traders is the same. Some may trade open, some close, and
some may send their orders to the market after the closing bell.

However, what all end-of-day traders have in common is that they disregard
short-term noise and refuse to trade at will in and out of the market. Trading at
the end of the day basically means using the daily charts, or better yet, the
closing data from New York. If your broker is not offering close price data for
New York, it is recommended that you find one that does.

If you learn end-of-day trading, the best part is that while you are using close
New York prices, during the first few hours of the Asian market hours and the
London market session, there is usually a quiet period of trading, giving you
plenty of time to be able to check your data for any trade signals.

This gives most people a bit of versatility, depending on your venue and the time
difference, to be able to position small orders and stops, or even sometimes
market orders, depending on your strategy.

Studies indicate that the markets are 'unsuccessful day trading' for up to 95
percent of losing traders. Sitting on the screen for a long time on end, watching
the market swing up and down, trying to capture a few pips on each swing,
hoping to trend for several hundred pips for the next swing! This sometimes
happens, but sitting for hours waiting is the biggest challenge for day traders, as
well as inconsistency.

Their findings are very inconsistent, and most of them end up blowing up a few
trading accounts and either quitting and walking away or trying to find the next
trading guru and system that they can try.

However, let me clarify that there are qualified traders out there who are
consistently benefiting from inter-day trading strategies and if your skill level is
proficient and you are consistent, continue with what works for you by all
means.

There are many traders who feel that loading up on a for sure" trade setup is the
key to trading success. They think that the longer they sit in front of the screen,
the greater the probability of making a lot of money trading; that's just not true.
In general, time spent in front of a live trading screen has an inverse connection
with a lot of trading accounts. The longer they sit on the screen, the worse it
seems to get for many of their results!

Some of the benefits if you can learn the end of day trading is as follows:
 1. You can trade around your current job. There's no need for you to
be on the screen, and this is a good thing. You are less likely,
frequently or emotionally, to trade impulsively, which are very
common mistakes that day traders make.

2. Your time is your own: If you receive a trade signal, you can spend
your time as you please once you place your orders, stops profit
targets, etc. You might want to go to the gym or the beach or spend
time with your family, whatever it's like to go do it!

3. You can follow multiple markets: It can be hard to follow more

than a few markets if your day is trading and be able to remain sharp
on all of them. You have time to track multiple instruments or markets
if you learn end-of-day trading and maybe run computer scans or
manually go through your charts to see if any signals have been
generated. This provides you the chance to be selective for the best
trading setups and not to wait all day long.

4. The longer the time frame is, the more correct the price action:
Often, if you're on a 5 minute, 15 minutes, and even 1-hour chart,
sometimes it can be very hard to see what's happening. "There is a lot
of noise," and with the price action, "clutter. It appears to make sense
only after it has been traded. Unfortunately, you need to be able to
trade on the right side of the screen, not on the left, to make money in
the markets.

5. Higher return on risk: Regular maps, or average true range, appear

to have a certain average movement range. If you observe the weekly
and monthly ATR's, you'll find that trading the daily time frame is a
much productive use of your time spent and bring a lot more weight
in terms of their possible range of movement. Inter-day price swings
can often produce good trades, but in most cases, in terms of reward
and risk, they are 1:1 or 2:1.

That implies that to be reliably profitable; you have to be on the winning side of
an awful lot. Study the monthly ATR's and begin to look for possibilities on the
daily charts. In terms of return on risk, you will often find trade setups with a 1R
risk that potential can run 5, 6, maybe even 10 to 1. Based on the New York
closing time, these trades are only handled after that. This is a much more
efficient trading use of time spent! Print some graphs and go and do some back
tests and see what you think!

2.3 Swing Trading

Swing trading is a trading style that seeks to produce short- to medium-term

gains over a span of a few days to several weeks in a portfolio (or any financial
instrument). To look for trading opportunities, swing traders mainly use
technical analysis. In addition to analyzing price trends and patterns, these
traders can use fundamental analysis.

Swing trading usually means holding a position for more than one trading
session, either long or short, but generally not more than several weeks or a few
months. This is a general time period since certain trades may last longer than a
few months, but they can still be considered swing trades by the trader. During a
trading session, swing trades may also take place, but this is an unusual outcome
brought on by highly unpredictable conditions.

Swing trading's aim is to grab a chunk of a future price change. While some
traders with lots of movement are looking for volatile stocks, others may prefer
more sedate stocks. Swing trading is the system of determining where the price
of an asset is likely to move next, entering a spot, and then taking a chunk of the
benefit if that move materializes in either case. Effective swing traders are only
searching for a chunk of the anticipated price change to catch and then move on
to the other chance.

One of the most common forms of active trading is swing trading, where traders
use different forms of technical analysis to search for intermediate-term
opportunities. You should be intimately acquainted with technical analysis if you
are involved in swing trading.

On a reward or risk basis, many swing trader’s analyses trades. They decide
where they will join by evaluating the chart of an asset, where they will put a
stop loss, and then predict where they will get out with a benefit. That is a
favorable risk/reward ratio if they are investing $1 per share on a setup that
might fairly yield a $3 benefit. On the other hand, it's not just as favorable to
gamble $1 to make $1 or make just $0.75.

Owing to the short-term nature of the transactions, swing traders mainly use
technical analysis. That said, fundamental analysis can be used to improve the
analysis. If a swing trader sees a bullish setup in stock, for instance, they may
want to check that the asset's fundamentals look favorable or are also improving.

Swing traders will also look for opportunities on the daily charts, and to find the
accurate entry, stop loss, and take-profit levels, they can watch 1-hour or 15-
minute charts.

2.4 Day Trading

The practice of selling and buying stocks in a short time period, usually in a day
is day trading. The aim is to receive on each trade a small profit and then
compound those profits over time.

Volatility is the name for day-trading. In order to earn their money, day traders
rely heavily on stock or market fluctuations. Whatever the reason, they like
stocks that bounce around a lot during the day: a good or poor update on results,
positive or negative news, or just general market sentiment. They also like
extremely liquid stocks, those that allow them to switch in and out of a position
without affecting the price of the stock much.

If it moves higher or short-sell it if it's moving lower, day traders might buy a
stock if it's moving higher or short-sell it if it's moving lower, trying to benefit
from the fall of a stock. Many times a day, they might trade the same stock, buy
it one time and then short-sell it the next, taking advantage of shifting. They're
looking for a stock to transfer, whatever approach they use.

2.5 Trend Trading

The fundamental concept of trading in patterns is straightforward. Trend trading

is when buying decisions based on patterns are taken by a trader. More precisely,
trend traders look at patterns in the price of a stock over time and compare them
with market trends and other information of the industry and studies to make
trades.

Trend trading is a systematic method to investing based on an asset's current

momentum, said Ali Hashemian, Kinetic Financials president. "A number of
various trade signals can be utilized, and traditionally there are fix rules and risk
controls put into position when using this trading style. Simply put, this trading
style captures profits by riding the upward or downward trend in an investment."

Also, the idea is clear; there's plenty that goes into trend trading. Some methods
perform better than others, and beginners can be confused by a whole lot of
terminology. Specific limits and rules for trading are also necessary to set and
obey. A structured approach to trading is intended to be trend trading.

It becomes a separated, robotic and stress-free approach to the markets with time
and experience, as the initial risk is often very low and well-controlled and only
the very best trades are taken, "With time and experience, it becomes a detached,
robotic and stress-free approach to the markets, as the starting risk is always very
low and well managed and only the very best trades are taken,"

However, answering "what is trend trading?" needs more than just a description.
A lot of data goes into the study of patterns and understanding the significance
behind various trend lines.

It's easier to become a good trend trader if you grasp the fundamentals of how
trend trading operates. Trend trading depends on understanding broad market
patterns, but what kinds of trends are most commonly used by trend traders?

Trend trading is normally used by stock traders, Hashemian. "Most often, this
trading style will add price calculations, moving averages, and take-gain or stop-
loss provisions. Traders will take price movement and technical tools to
determine trading signals."

Not all trend traders are stock traders, but there are widely recorded trends for
commodities, which makes it a little simple to spot those trends. When they
decide to buy the stock, traders who notice trends expect them to continue.

A trader, for example, may have spotted a pattern six months ago in quick casual
dining and decided to track Chipotle and Shake. Once the trader saw an uptrend
in stocks, in anticipation of the stocks continuing the trend, they may have
purchased them. Because of the starting of the year, both stocks have seen big
upward spikes, so this would have been a powerful gamble.

Searching stocks likely to show an uptrend over six months or a year takes a
good system of finding trends. The best trend traders are understandably elite in
identifying trends in various companies. This is where it aids to have a collection
of indicators in your trend plan that makes you feel secure.

One of the most common factors for trend traders is moving averages. With each
stock, a moving average helps traders block the many variations by
concentrating on an average. For instance, for a 10-day period, you can see a
moving average for a company's stock at the close of the stock market daily.
This gives you a better understanding of where the price of the stock has closed
over the cycle every day and where the average price is going. You can help
detect patterns by doing this for longer periods.

Moving averages for lows can also be monitored. You can also get a deeper
knowledge of how the stock is trending by monitoring the lowest point of the
stock every day for a few weeks or months. Moveable average
convergence/divergence, relative strength index, and on-balance volume are
other common trend trading indicators.

The trend is a good way for you to start trading if you like the idea of just
making a few hundred trades per year while still making money. Trend investing
eliminates much of the risk associated with day trading.
"With experience and time, it becomes a robotic, detached, and stress-free
approach to the markets, as the starting risk, is always very low and well
managed, and only the great trades are taken," said Zaheer Anwari, co-founder
of Sublime Trading.

A plan of attack is crucial once trend trading piques your attention. The popular
indicators must be studied, and the ones you think are the best for your trading
goals must be decided. It's time to flesh out your trading plan once you settle on
a couple of indicators. How many stocks at a time do you want to hold? How
much cash are you going to put into each position? Once you buy stock, when
are you going to sell it?
During the trading process, it is a good idea to set guidelines and laws to obey.
You will be able to take feelings out of the decision-making process and
concentrate purely on identifying patterns by sticking to the guidelines, no
matter what.

You will also need a trading platform in order to begin trading. There are various
sites, and the selection process varies according to your trading preferences. All
widely used channels include Fidelity Portfolios, TD Ameritrade, and ETRADE.

2.6 Scalping

Instead of focusing on optimizing the capital gains on each transaction, scalping

is a short-term trade strategy that emphasizes profiting from the number of trades
placed. Even shorter than some other types of day trading, scalping reflects the
shortest-term trading type. It got its name because during the trading day, traders
who follow the style known as scalpers easily join and leave the market to skim
small profits from a large number of trades. Ideally, these small profits
eventually add up to what the trader would have gained to make a single, more
profitable trading day.

From a market volatility viewpoint, scalpers think it's faster and less costly to
benefit from small changes in stock prices rather than taking the risk of
depending on big shifts. This includes setting tight windows for trading, both in
terms of market movement and timeline.

In contrast to fundamental analysis, traders who follow this investment style rely
on technical analysis. Technical analysis is a kind of market analysis that focuses
on the past price movements of a security, usually with the aid of charts and
other tools for data analysis. Scalpers can observe regular time and sales trends
with historical price data in hand and forecast the future movements of defense,
setting up levels of support and resistance based on moving averages and using
them to exit and enter trades.

In comparison, fundamental analysis typically includes using the financial

statements of a company, discounted cash flow modeling, and other methods to
determine the intrinsic value of a company. Understanding a company's real
value will help traders manage risk at the right time and exit long positions.
Immediately after its publication, scalpers can trade on news or events that
dramatically affect the value of a company. They use short-term shifts in
fundamental ratios to scalp trades in some situations, but they concentrate more
on technical charts. As these charts represent what happened in the past, as the
time horizon grows, they lose meaning, which makes technical analysis more
relevant for the short-term nature of scalping.

Scalpers may be traders who are either discretionary or systemic. Every trade
decision based on market conditions is quickly made by discretionary scalpers,
and it is up to the trader to determine the parameters of each trade (timing, profit
targets, etc.). Systematic scalpers rely little on their own instinct and instead
build computer systems without individual trading decisions that automate
scalping strategies and execute trades. When the machine sees a trading
opportunity, it makes a trade without waiting for the trader to determine the
precise details of that trade.
Chapter 3: How Stock Market Works
The stock market relates to the sum of markets and exchanges where daily tasks
of buying, selling, and issuance of shares of publicly-held corporations take
place. Such financial activities take place through institutionalized formal
exchanges or over-the-counter (OTC) marketplaces that operate under a defined
set of rules. There can be multiple stock trading places in a country or a region
that allow transactions in stocks and other forms of securities.

Even though both terms - stock market and stock exchange - are being used
interchangeably, the following term is usually a subset of the former. If one says
that she or he trades in the stock market, it indicates that she or he sells and buys
equities/shares on one or more of the stock exchanges that are part of the stock
market overall. The main stock exchanges in the U.S. include the New York
Stock Exchange, NASDAQ, and the Chicago Board Options Exchange (CBOE)
(CBOE). These leading national stock exchanges, accompanying various other
exchanges operating in the country, form the stock market of the U.S.

3.1 Stock Market

Since it is called a stock market or equity market and is known primarily for
trading stocks/equities, other financial securities - like exchange-traded funds,
corporate bonds, and derivatives based on stocks, currencies, commodities, and
bonds - are also traded on the stock exchange markets.
 Primary market

Where securities are produced in the primary market, it is in this market that
businesses sell (float) new bonds and stocks for the first time to the public. One
example of a primary market is an initial public offering or IPO. These trades
provide investors with an opportunity to purchase securities from the bank that
made the initial underwriting for a specific stock. An IPO happens when, for the
first time, a private corporation issues stock to the public.

ABCWXYZ Inc., for example, employs five underwriting firms to evaluate the
financial specifics of its IPO. The underwriters explain that the stock's issue
price would be $15. Investors may then purchase the IPO directly from the
issuing company at this amount.

This is the 1st chance for investors to add money to a business through the
acquisition of its stock. The equity capital of a business consists of the wealth
provided by the selling of stock on the primary market.

After shares have already reached the secondary market, a rights offering (issue)
enables businesses to collect additional equity via the primary market. Current
owners are given prorated rights depending on the shares they already hold, and
newly minted shares may be reinvested by others.

Private placement and preferential allotment provide other forms of primary

market offerings for stocks. Private placement enables businesses to sell directly
to more relevant buyers, such as hedge funds and banks, without having publicly
available securities. At the same time, the preferential allotment offers select
investors' shares (usually hedge funds, banks, and mutual funds) at a special
price that is not open to the general public.

Likewise, companies and governments that want debt capital to be created can
select to issue new long and short-term bonds on the primary market. New bonds
are sold at coupon rates that, at the time of maturity, equate to current interest
rates that may be higher or lower than pre-existing bonds. The crucial thing
about the primary market to understand is that securities are bought from an
issuer directly.
 The secondary market

The secondary market is usually referred to as the' stock market for buying
equities. This involves the New York Stock Exchange (NYSE), NASDAQ, and
all other exchanges across the globe. The secondary market's distinguishing
feature is that investor’s trade among themselves.

That is, in the secondary market, investors exchange securities previously issued
without the participation of the issuing companies. If you go to purchase
Amazon (AMZN) stock, for example, you're just dealing with another investor
who owns Amazon shares. Amazon is not concerned with the sale directly.

Although a bond is expected to pay its owner the maximum par value at maturity
in the debt markets, the date is sometimes several years down the road. Instead,
if interest rates have declined since the issuance of their bond, bondholders will
sell bonds on the secondary market for a clear profit, making them more
attractive to other investors because of their comparatively higher coupon rate. It
is possible to break down further the secondary market into two specialized
categories:

1. Demand for auctions

Both individuals and organizations who wish to exchange securities meet in an

auction market in one place and declare the rates at which they are prepared to
buy and sell. These are referred to as rates to bid and inquire. The premise is that
by getting all parties together and making them publicly announce their rates, an
effective market can prevail. Thus, logically, since the convergence of buyers
and sellers would allow mutually desirable prices to arise, the best price of good
requires not to be pursued. The New York Stock Exchange (NYSE) is the best
example of an auction market.

2. Demand for dealers

A dealer market, by contrast, does not require parties to converge at a central

location. Instead, the market participants are joined through electronic networks.
The dealers keep a security inventory, then are prepared to purchase or sell with
market participants. Via the spread between the rates at which they purchase and
sell securities, these dealers gain money. The NASDAQ is a dealer market
example, in which dealers, known as market makers, have a firm offer and ask
for rates at which they are willing to buy and sell a security. The idea is that the
best possible price for buyers would be given by rivalry between dealers.

Knowing the stock market

As today it is possible to buy almost everything online, there is usually a

designated market for every commodity. For instance, people drive to the city
outskirts and farmlands to buy Christmas trees, going the local timber market to
get wood and other essential material for home furniture and renovations and go
to shops like Walmart for their general grocery supplies.

Such specialized markets act as a basis where numerous buyers and sellers meet,
interact, and transact. Because the number of market participants is massive, one
is assured of a fair price. For instance, if there is only one seller of Christmas
trees in the entire city, he will have the choice to charge any rate he pleases as
the buyers won't have anywhere else to go.

If there are more tree sellers in a commercial marketplace, to attract buyers, they
will have to compete with each other. Purchasers would be spoiled with low or
optimum prices for options, making it a fair market with transparency in prices.
Buyers compare prices offered by multiple sellers on the same shopping
platform or through different platforms even when shopping online to get the
best offers, forcing the various online sellers to offer the lowest price.

In a safe, regulated, and managed environment, a stock market is a comparable

designated market for trading different types of securities. As the stock market
brings together hundreds of thousands of market participants who plan to
purchase and sell shares, equal trading practices and transaction transparency are
guaranteed. The modern computer-aided stock markets work electronically,
while earlier stock markets used to issue and trade in paper-based physical share
certificates.

Why the stock market works

In short, stock markets provide a stable and controlled environment where

market participants can rely on zero-to-low-operational risk transactions in
shares and other qualifying financial instruments. The stock markets operate as
primary markets and as secondary markets, operating under the specified rules as
stated by the regulator.

The stock market, as the main market, enables businesses to issue and sell their
shares to the general public for the 1st time through the initial public offering
process (IPO). This activity allows businesses to collect requisite investor
capital. This simply means that a corporation splits itself into a number of shares
(say, 20 million shares) and sells a portion of those shares (say, 5 million shares)
at a price (say, $10 per share) to the general public.

A firm needs a marketplace where these securities can be traded to promote this
process. The stock market offers this marketplace. The company would
successfully sell the five million shares at a price of $10 per share and raise
$fifty million worth of funds if everything goes according to the plans. In
expectation of a rise in the share price and any future revenue in the form of
dividend payments, investors can receive the company stock they may expect to
hold for their desired period. The stock exchange serves as a facilitator for this
phase of capital raising and earns a commission from the company and its
partners for its services.

Also, the stock exchange behaves as the trading platform that enables the daily
purchase and sale of the listed shares, following the 1st timeshare issuance IPO
activity called the listing process. The secondary market is constituted by this.
For any transaction that occurs on its platform during secondary market
operation, the stock exchange receives a fee.

In such trading activities, the stock exchange must be responsible for

maintaining market transparency, liquidity, price discovery, and fair dealings.
The exchange operates trading networks that effectively handle the purchasing
and selling of orders from different market participants, as nearly all major stock
exchanges across the globe now run electronically. To promote trade execution
at a fair price for both buyers and sellers, they perform the price matching role.

A listed company may also sell additional, new shares at a later stage through
other deals, like through the issue of rights or through follow-on offers. They can
also purchase their shares back or delist them. The stock exchange facilitates
transactions of this kind.
Various market-level and sector-specific indices, like the S and P 500 index or
the Nasdaq 100, are also developed and retained by the stock exchange,
providing a measure to chart the movement of the overall market. The Stochastic
Oscillator and Stochastic momentum index offer other methods.

Both company news, updates, and financial reports, which can normally be
accessed on their official websites, are also maintained by the stock exchanges.
A stock exchange also funds different other transaction-related functions at the
corporate level. Profitable companies, for example, can reward investors by
paying dividends that typically come from a portion of the earnings of the
company. The exchange retains all such information and can, to a certain degree,
facilitate its processing.

3.2 Stock Market Functions

The following roles mainly represent the stock market:

Equal dealing in securities transactions : The stock exchange needs to ensure

that all interested market participants have immediate access to data for all
purchase and selling orders, based on the normal demand and supply regulations,
thus assisting in the fair and clear pricing of securities. In addition, accurate
matching of relevant buy and sell orders should also be done.

For instance, there may be three buyers who have placed orders to buy $100,
$105, and $110 Microsoft shares, and there may be four sellers who are willing
to sell $110, $112, $115, and $120 Microsoft shares. The exchange has to ensure
that the best buy and best sell are balanced (through their machine-controlled
electronic trading systems), which in this case is at $110 for the specified amount
of trade.

Effective price discovery: Stock markets need to promote an efficient price

discovery process that refers to the act of evaluating the correct price of a
security and is generally carried out by analyzing market supply and demand and
other transaction-related factors.

Say, a software firm headquartered in the United States is trading at a price of

$100 and has a $5 billion market capitalization. A news item is that the EU
regulator has levied a $2 billion fine on the company, which effectively means
that it is possible to wipe out 40 percent of the company's value. Although the
stock market may have placed a $90 and $110 trading price range on the share
price of the company, the allowable trading price cap should be adjusted
effectively to accommodate future adjustments in the share price; otherwise,
shareholders may struggle to trade at a fair price.

Liquidity maintenance : While the number of buyers and sellers is out of reach
for the stock market for specific financial stability, it needs to ensure that
everyone who is eligible and able to trade gets immediate access to position
orders that should be executed at the fair price.

Security and validity of transections : While more participants are essential for
the efficient functioning of a market, the same market requires to ensure that all
participants are checked and comply with the required rules and regulations,
leaving no space for any of the parties to default. Furthermore, it should ensure
that all relevant companies operating on the market are also expected to comply
with the rules and operate within the legal framework established by the
regulator.

Help all qualifying types of participants : A number of participants, including

market makers, investors, brokers, speculators, and hedgers, shape a
marketplace. In the stock market, all these members work in various positions
and functions. An investor, for example, may buy stocks and keep them for
several years in the long term, while a trader may enter and leave a position in
seconds. In order to minimize the risk involved in investments, a market maker
provides the requisite liquidity in the market, whereas a hedger may like to trade
in derivatives. In order to ensure that the market continues to work successfully,
the stock market should ensure that all such members are able to operate
smoothly in performing their desired positions.

Investor protection : In addition to affluent and institutional investors, the stock

market also represents a very large number of small investors for a small amount
of money. Such investors may have limited financial expertise and may not be
fully aware of the pitfalls of investing in stocks and other instruments listed. The
stock exchange must take the necessary steps to provide such investors with the
necessary security to protect them from financial losses and to ensure consumer
trust.
For example, according to their risk profiles, a stock exchange can categorize
stocks in different segments and allow for limited or no trading in high-risk
stocks by common investors. Exchanges also enforce limits to prevent risky bets
on derivatives from reaching individuals with restricted income and expertise.

Balanced regulation : Listed companies are primarily regulated, and market

regulators, such as the Securities and Exchange Commission (SEC) of the U.S.,
control their dealings. In addition, exchanges also mandate certain criteria to
ensure that all market participants become aware of corporate activities, such as
the prompt filing of quarterly financial reports and immediate reporting of any
related developments. Unable to follow the rules can result in the suspension of
trading by the exchanges and other measures of discipline.

Regulating the demand for stocks

The responsibility of controlling a country's stock market is delegated to a local

financial regulator or a professional monetary authority or institute. The
Securities and Exchange Commission is the administrative agency responsible
for regulating the financial markets in the U.S. The SEC is a federal agency that
operates independently of political and government pressure. The SEC's mission
is to safeguard investors, maintain fair, orderly, and efficient markets, and
facilitate the formation of capital."

3.3 How Money is Made by Stock Exchanges

Stock exchanges act as profit-making institutions and charge a fee for their
services. Revenues from transaction fees paid for each trade carried out on its
website are the primary source of income for such stock exchanges. In addition,
exchanges receive income during the IPO process and other follow-on offerings
from the listing fee paid to businesses.

The exchange also profits from the sale of market data produced on its website,
which is essential for equity research and other uses, such as real-time data,
historical data, summary data, and reference data. Many exchanges may also
offer hardware items to interested parties for an acceptable price, such as a
trading terminal and a dedicated network link to the exchange.
The exchange can provide larger customers such as mutual funds and asset
management companies (AMC) with privileged services such as high-frequency
trading and earn money accordingly. There are regulatory and registration fee
requirements for the various profiles of market participants, such as market
makers and brokers, which are other sources of stock exchange revenue.

By licensing their indexes (and their procedures), which are widely used as a
benchmark for the launch of various products such as mutual funds and ETFs by
AMCs, the exchange also makes money. Many exchanges often provide industry
members with courses and certifications on different financial topics and receive
revenue from such subscriptions.

Capital markets contest

While individual stock exchanges compete with each other to get the full amount
of transactions, they face a challenge on two fronts.

Dark pools : Dark pools are private exchanges or shares trading forums that
exist within private groups, pose a threat to public capital markets. Even though
their legal validity is subject to local legislation, as participants save big on
transaction fees, they are gaining popularity.

Block chain ventures : Several crypto exchanges have arisen amid the growing
growth of block chains. These exchanges are venues affiliated with the asset
class for the trading of cryptocurrencies and derivatives. While their popularity
remains limited, by automating a majority of the work performed by different
stock market participants and by providing zero- or low-cost services, they pose
a challenge to the conventional stock market model.

3.4 The Stock Market Significance

One of the most significant parts of a free-market economy is the stock market.
It enables businesses, by selling stock shares and corporate bonds, to raise
capital. While losses are also possible, it allows common investors to share in
the company's financial successes, make money through capital gains, and earn
cash through dividends. Although institutional investors and skilled fund
managers enjoy some advantages because of their deep pockets, superior
expertise, and greater capacity to take risks, the stock market aims to give
ordinary people a level playing field.

The stock market serves as a forum by which individuals' savings and

investments are channelized into profitable investment proposals. It helps the
country's capital accumulation and economic development in the long term.

Stock markets are essential components of a free-market economy because they

enable investors of all kinds to have democratized access to trading and
exchanging money. In markets, they perform many roles, including effective
price discovery and effective trading.

The financial markets examples

The world's first stock market was the stock exchange in London. It began in a
coffeehouse in 1773, where traders used to meet to exchange shares. In 1790, in
Philadelphia, the first stock exchange in the United States of America was
started. The Buttonwood agreement marked the beginning of New York's Wall
Street in 1792, so-called because it was signed under a buttonwood tree. Twenty-
four traders signed the agreement, and it was the first American association of its
kind to deal in securities. In 1817, the merchants called their venture the New
York Stock and Exchange Board.
Chapter 4: How to Trade Successfully
You need the support of a stockbroker to buy stocks, as you may not normally
just call up a company and ask for your own purchase of their stock. There are
two basic types of brokers for inexperienced investors to choose from: a full-
service broker or an online/discount broker.

4.1 How to Buy Stocks and Sell Them on Your Own

Brokers full-service : When thinking about investing, well-dressed, polite

businesspeople sitting in an office talking with customers, full-service brokers
are what most individuals imagine. These are the conventional stockbrokers who
will take the time to personally and financially get to know you. They can look
at variables such as marital status, lifestyle, personality, risk tolerance, age (time
horizon), income, properties, debts, and more. These full-service brokers will
then help you build a long-term financial strategy by getting to know as much
about you as they can.

Not only can these brokers support you with your investment needs, but they can
also provide help with estate planning, tax advice, retirement planning,
budgeting, and every other kind of financial advice, thus the word "full-service."
They can help you handle all of your financial needs now and far into the future
and are for investors who want it all in one bundle. Full-service brokers are more
costly than discount brokers in terms of commissions, but the benefit of having a
competent investment advisor on your side might well be worth the extra costs.
Accounts of as little as $1,000 may be set up in terms of the sort of broker they
need; most individuals, especially beginners, will fall into this category.

Brokers online/discount

On the other hand, online/discount brokers don't have any investment advice and
are essentially only order takers. Since there is usually no office to visit and no
certified investment advisors to support you, they are far less costly than full-
service brokers. Cost is generally based on a per-transaction basis, and with little
to no capital, you can usually open an account over the internet. Typically, if you
have an account with an online broker, you can easily log in to their website and
into your account and be able to immediately buy and sell stocks.

Know that you are on your own to handle your assets, as these types of brokers
offer absolutely no investing advice, stock tips, or another sort of investment
assistance. Technical assistance is the only aid you can normally get. Online
(discount) brokers provide contacts, analysis, and services relevant to investment
that can be useful. If you believe you are experienced enough to take on your
own investment management duties or you don't know much about investing but
want to educate yourself, then this is the way to go.

The bottom line is that your broker selection should be based on your individual
requirements. For those who are prepared to pay a premium for someone else to
look after their money, full-service brokers are fantastic. On the other hand,
online/discount brokers are perfect for individuals with little start-up money who
would like to take on the rewards and risks of investing without any skilled
assistance on their own.

Purchase plan for direct stock

Companies (often blue-chip companies) frequently fund a special form of a

program called a DSPP, or Direct Stock Purchasing Plan. DSPs have initially
developed years ago as a way for companies to enable smaller investors directly
from the company to buy ownership. Participating in a DSPP allows an investor
to directly communicate with a company rather than a broker, but the method for
managing a DSPP is specific to any company. Usually, most sell their DSPP
through transfer agents or another administrator from a third party. An investor
may contact the company's investor relations department to learn more about
how to engage in the DSPP of a company.

By opening a brokerage account with one of the many brokerage firms, you can
buy or sell stock on your own. Link it with your bank checking account after
opening your account to make deposits, which are then available for you to
invest.

The ease of opening an account, however, should not be equated with the ease of
making good investment decisions. Beginners are usually advised to talk to a
trained financial advisor. New investors should read Benjamin Graham's "The
Intelligent Investor" Smart investment can be incredibly rewarding, but take it
slowly, do your homework and find a consultant with your best interests in mind.

4.2 How Stocks are Traded

Inevitably, someone would pipe up with countless questions like:

"What stocks am I supposed to buy?"

Is Business X a successful investment?"
For this stock, is $XX too much?

First of all, first thing: slow down .

You'll want to pause to make sure you understand how to make a decision about
what stock to buy before you make an investment in any kind of stock, which
takes us to how to trade stocks in just three steps:

Set an aim for investing

Open an account with a brokerage.
Purchase the first inventory

Phase 1: Set an aim for investing

You should set some targets before you even intend to start investing.
Psychologically, this is a critical step that will help you remain focused on
achieving your objectives. Asking yourself why you're spending is a good way
to come up with an investment objective. Do you want to save retirement
money? Are you planning to raise money down the road for a big purchase? If
you just want to help whatever enterprise or organization you're investing in?

Framing a SMART target around it once you have your reason why. The
alternative to the vague goal-setting that takes you nowhere is SMART
objectives.

SMART stands for real, measurable, realistic, time-oriented, and appropriate.

Here are a collection of questions that you may ask yourself to formulate your
objective: What is my target going to achieve? What is the exact result that I am
searching for?

Measurable . How am I supposed to know when I have achieved the goal? How
does achievement look?

Achievable . Are there assets I need to accomplish the objective? What are these
tools (e.g., membership of the gym, bank account, new clothing, etc.)?

Appropriate . Why should I do that? Do I want to do this for real? In my life

right now, is it a priority?

Time-orientation : What's the deadline? Will I know if I'm on the right track in
a few weeks?

You can have a goal as plain as I want to earn $1,000 from my investments in
two years to put in a new car" or one that is a little more complex, like you want
to earn 30 percent more in one year on your main investment.

Step 2: Open an account with a brokerage

There will be an online brokerage account where you will do your trading and
saving, and there is a lot to choose from. Ensure that when you sign up, you have
your social security number, employer address, and bank info (account number
and routing number) available, as they will be useful during the application
process.

Phase 1: Go to the brokerage website of your choosing.

Step 2: Click on the button "Open an account.
Step 3: Open an "Individual brokerage account" search.
Phase 4: Name, address, date of birth, employer info, social security, enter
information about yourself.

Phase 5: By entering your bank details, set up an initial deposit. Some brokers
ask you to make a minimum deposit, so in order to deposit money into the
brokerage account, use a separate bank account.
Phase 6: Just wait: It will take anywhere from 3 to 7 days to complete the initial
transition. After that, via email or phone call, you will get a notification
informing you that you are ready to invest.

Phase 7: Log-in and start investing in your brokerage account!

The process of applying can be as quick as 15 minutes and will put you on your
way to a rich life.

Learn to use limit and market orders

When you have your brokerage account and budget in place, the website or
trading platform of your online broker can be used to place your stock trades.
For order forms, you'll be faced with many choices that determine how your
trade goes through. There are two most common types:

Market order:
Limit order:

Many investors choose to buy and sell stocks for themselves online with the
proliferation of digital technologies and the internet instead of paying high
commissions to conduct trades to advisors. However, it's important to understand
the various types of orders and when they are suitable before you can start
buying and selling stocks.

Market order vs. limit orders

The market order and the limit order are the two main forms of orders that any
investor should recognize.

Market order

The most fundamental form of exchange is the market order. It is an order to

instantly purchase or sell at the current price. Usually, you can pay the price at or
near the posted request if you are going to purchase a stock. You will get a price
at or near the posted offer if you are going to sell a stock.
One crucial thing to note is that it is not always the price at which the market
order will be executed that the last exchanged price is. The price at which you
are actually executing (or filling) the trade will deviate from the last traded price
in fast-moving and volatile markets. Only when the bid/ask price is precisely at
the last traded price will the price remain the same.

Market orders do not guarantee the amount, but they guarantee instant execution
of the order. Among individual investors who like to buy or sell a stock without
delay, market orders are common. The benefits of using market orders are that
you are assured to complete the trade; it will actually be conducted as quickly as
possible. Since the investor does not know the exact price at which the stock will
be purchased or sold, market orders will generally be executed similar to the
bid/ask rates on stocks trading over tens of thousands of shares each day.

Limit orders

A limited order, also referred to as an outstanding order, enables investors in the

future to buy and sell shares at a certain amount. If the price hits a pre-defined
level, this form of order is used to perform a trade; the order will not be filled if
the price does not meet that level. In essence, the maximum or minimum price at
which you are willing to buy or sell is fixed by a restriction order.

For instance, if you like to buy a $10 stock, for this sum, you might enter a
limited order. This implies that for that particular stock, you will not pay one
cent over $ 10. It is still conceivable, however, that you could purchase it for less
than the $10 per share listed in the order. There are four kinds of limit orders:

Buy limit : an order for a security to be purchased at or below a specified price.

Ensure that they fulfill the mission of improving the price; limited orders must
be put on the right side of the market. This implies putting the order at or below
the current market offer for a purchase limit order.

Sell limit : an order for a security to be sold at or above the price specified. The
order must be put at or above the current market demand to ensure an increased
price.

Buy stop : an order to purchase security above the current market offer at a
price. A stop purchase order only becomes active after a defined price level has
been reached (known as the stop level). Orders put above the market and sell
stop orders placed below the market are buy stop orders (the opposite of buying
and sell limit orders, respectively). The order will be automatically changed into
a market or limit order until a stop amount has been reached.

Sell stop : an order to sell security below the current market request at a price. A
stop order to sell only becomes active after a defined price level has been
reached, like the purchase stop.

Investors should be mindful of the additional costs when choosing between a

market and a limited order. For market orders, the commissions are usually
cheaper than for small orders. The commission gap can be anything from a
couple of dollars to more than $10. For instance, when you put a limit restriction
on it, a $10 commission on a market order can be boosted up to $15. Make sure
it's worthwhile when you place a restriction order.

Practice with a trading account virtual

There is nothing better than the low-pressure, hands-on experience that investors
can obtain through the virtual trading instruments provided by many online stock
brokers. Before putting real dollars on the line, paper trading helps clients to test
their trading acumen and build up a track record.

Phase 3: The first stock purchase

Thinking of companies you like, and use is the best way to narrow down the
universe of stock options. Take some time right now to note down the 15
companies you use and return to them time after time. Only think about it, for
instance:

Food: Whole foods, shakes.

Clothing: Undergarments, brands limited.
Products: IBM, UPS Services
Technology: Microsoft, Apple, Snap
Entertainment: Live videos, Disney, Netflix
 Conveyance: Tesla, Ford, CSX Company

You now have 15 firms you might potentially invest in instead of 5,000 stock
options to choose from. Bear in mind that a good stock does not necessarily
mean a good business! You need a deeper study for any stock; for example, "I
think Tesla cars are dope, so I'm going to purchase a bunch of stock from them."
You'll want to look at five different areas instead:

Trends : From this period last year sales rising? Two years ago? Five years ago?

Products : In terms of upcoming product growth, is the future bright? What

news have you heard about their goods for the future?

Revenues/profits/growth/earnings per share : A stock's actual economic nuts

and bolts. These are initially daunting. Fortunately, a lot of places will direct you
through it.

Management : at the organization, is management good? Or do they have a

negative press for unscrupulous activities like employee overwork? What's the
turnover there? What is their ideology and their capacity to perform?

Do as much work as you can. If you see a justification for doubting a business
based on any of the above fields, avoid those stocks. All the tables, profits, and
balance sheets will be extremely overwhelming at first, but the more you look at
them, the more you will begin to get a clearer understanding of what's
happening. It merely requires practice.

It's just good to trade individual stocks if you have the rest of your financial
house in order. It means:

Automating personal finances for you

Maxing out 401k and Roth IRA contributions
Constructing an emergency fund
To get out of debt

It's only good to spend 5 percent to 10 percent of your profits in individual

stocks after you've done all those things. That's because by investing in
individual stocks, you do not get rich. Instead, low-cost, diversified index funds
are the perfect way to create a rich life.

Let's look at an illustration from the real-world.

Say you're 25 and you plan to invest $500/month in a diversified low-cost index
fund. If you do it until you're 60, how much money do you think you'd have?

Returns from index fund over 40 years: 1,116,612.89 dollars. That is right, after
just spending a few thousand dollars per year, you'd be a millionaire. More than
chasing hot stocks or something else, smart investments are about consistency:

4.3 How to Pick the Right Stocks

It can be a nail-biting decision to choose to invest in a stock. But if a couple of

golden rules are tested out, it could be a winner. These are golden rules for the
best stock range.
1. Investing in businesses that dominate their markets

Did you find that different portfolio continue to exist in the same companies?
Whether we're talking about index funds, actively managed mutual funds, or
individual investment manager-designed portfolios doesn't matter. Over and over
again, brands like Amazon, Apple, McDonald's, and Facebook are coming up.

There's an explanation of why it happens, and it's not just because they all obtain
information from the same sources from investment managers. It's because their
respective sectors control many businesses. That makes the job of an investor a
lot easier. Not only do such businesses have a long record of market dominance,
but they have an uncanny ability to come up with new products and services that
are well received by customers.

It's not an accident. To bring out winning products and services, such companies
have the money, know-how, and resources. There's never a guarantee that they
will continue to do this in the future. But an excellent sign of continued
performance is the fact that they have a track record of doing so successfully in
the past.

2. Investing in businesses that you appreciate

Literally, there are thousands of different businesses you can buy stock in. Some
of them are well-known businesses that offer goods and services for daily use.
Such are the businesses in which you can invest.

There is a near connection between a product or service's success and the output
of the stock of the company. And when a product is familiar, it means that the
consuming public recognizes and embraces it well. You have a solid
understanding of how the business operates if you understand the goods of the
company, and particularly if you already use them.

Another group covers enterprises that are active in sectors where you have
above-average experience. It could be that you're, or have been in the past,
working in the industry. Or it could be because, even though you don't actually
use the goods and services it provides, you have a special interest in a certain
industry.
Keep away from businesses you don't understand on the other side of the
continuum. There are a number of upstart drug makers, for instance, that could
be showing significant potential. Many of them, however, sell on promise alone.
That is, they are working on an experimental drug that is supposed to make a big
advance in medicine. But they are not profitable until they finally have a
breakthrough and begin selling the item; they do not even have a cash flow.

This is only one instance of an industry or sector that you do not recognize.
There are many others, particularly those that require a high degree of analysis.
But very realistic industries that require complex business models can also be
very practical. If you have trouble knowing just what they're doing or how they
make money, those inventories are best avoided.

3. In two or three sectors, do not overwhelm

This is basically a disclaimer of the previous suggestion. Yeah, you would like to
invest in sectors that you recognize. But at the same time, be sure that your
portfolio in a very limited number of industries is not filled with stocks.

For e.g., you may be tempted to flood your portfolio with tech stocks if you
work in IT. That's your business, after all, and what you understand. But every
sector is subject to the ups and downs of the economy, no matter how well you
know it. Just because today's technology is soaring high doesn't mean that it'll be
forever. (The dot-com bubble, remember?)

If you intend to hold, say, ten different stocks, make sure that six or seven
different sectors are diversified. The worst thing you might do is in a single
industry to have half or more. While when that business is in an upswing, it
might serve you well, when that sector turns down, the backlash can be
financially punishing.

Realize that a particular sector will go into a bear market for a variety of reasons
we cannot foresee, even though the general market is thriving. It is all about
diversification, and whether you are in funds or individual stocks, that matters.

4. Buy stocks of strong track record companies

The ultimate stock market dream is to purchase an unknown, upstart company's

"penny stock," then watch its stock price skyrocket past $100 in just a few
months. Yet imagination is just all it is. Sure, in real life, it happens. But it is
known only in retrospect after the price of the stock has taken off. Rest assured
that there are 1,000 would-be dreams for every such success story that never got
out of the starting gate.

Go with businesses that have an established track record for that reason. This
would obviously bring you out of the domain of new businesses. But the first
rule" in the stock market of making money is not to lose any. It is more likely
that any business that is relatively new and unproven will result in a negative
result.

The company should be around for many years; the more, the better in order to
be an established business. Perhaps more significant, on a consistent basis, they
should have a steady track record of increasing both sales and benefit. For
instance, in eight of the last ten years, you might look for a business whose sales
and profits have increased.

A business like that puts time on your side because it shows a steady trend of
growth. Other clients, as well as fund managers, see that too. Chances are they're
keeping the stock now, or they're planning to buy it in the near future. For the
long-term prospects of that company, all of that bodes well.

5. Dividends matter

Dividends reflect the return to investors of a portion of the income of a business.

They provide an instant return on investment so that the investor does not rely
solely on capital gains. They are especially appealing to revenue investors, and
in-market downturns, they provide some measure of security.

Likewise, a business that pays dividends to its owners on a regular basis is a

healthy business. They are able to continue operations and even extend while
returning their investors some of the profits.

Kiplinger's publishes an annual list of aristocratic dividends which are well

worth considering. Dividend aristocrats are described as "companies in the S&P
500 that for at least 25 consecutive years have increased their payouts every
year."
 Warning: No assurances exist

It is yet to be discovered whether there is a method that guarantees choosing

only winning stocks. With that in mind, recognize that losses can still be caused
by your best strategies. Investing requires a significant measure of embracing
fact, and that is the rise and fall of both markets and stocks.

The best that all of us can do is to establish guidelines to regulate what stocks we
can buy. That will only increase the chances of selecting winning stocks, but
preventing losses will still fall well short.

4.4 When to Begin

Theoretically, two main decisions are involved in the ability to make money on
stocks:

Purchasing at the right time and

Selling at the right time.

You have to correctly conduct both of these decisions in order to make a profit.
The return on any investment is determined first by the price of the purchase.

One might argue that at the moment it's bought, a profit or loss is made; the
buyer just doesn't realize it until it's sold. However, since the profit received can
eventually be decided by purchasing at the right price, selling at the right price
ensures profit (if any). The advantages of buying at the right time vanish when
you don't sell at the right time.

Most investors have difficulty selling a stock, and often the cause is rooted in the
intrinsic human propensity toward greed. There are some methods you can use,
however, to determine when it is (and when it is not a good time to sell. The
most important thing about these systems is that they are seeking to take some of
the human feelings out of the decision-making process.
Generally, there are three good reasons for selling a stock.

First, in the first place, purchasing the stock was a mistake.

 Secondly, the price of stocks has risen sharply.
Finally, a foolish and unsustainable price has been reached for the
stock. Although there are many other potential reasons for selling a
stock, investment decisions may not be as prudent.

Here's an all-too-common scenario: With the goal of selling it once it hits $30,
you buy stock shares at $25. The stock hits $30, and for a few more gains, you
plan to hold out. The stock hits $32, and logic is replaced by greed. The stock
price suddenly fell down to $29. You are just asking yourself to wait until it hits
$30 again. This never occurs. When it hits $23, you eventually succumb to
desperation and sell at a loss.

It could be argued that greed and emotion have overshadowed rational judgment
in this case. The loss was $2 a share, but when the stock reached its peak, you
potentially would have made a profit of $7.

Such paper losses can be better ignored than agonized over, but the real question
is the justification for the investor to sell or not to sell. Consider using a limit
order, which will automatically sell the stock when it exceeds your target price,
to eradicate human nature from the equation in the future. You're not really
going to need to watch the stock go up and down. When your sales order is put,
you'll get a note.

Selling stock as the price rises drastically.

It's quite likely that in a short period of time, a stock you just purchased will
grow dramatically. The most modest investors are also of the greatest investors.
Don't take the rapid increase as an indication that you are smarter than the
business as a whole. Selling the stock is in your best interest.

For a variety of reasons, including speculation by others, a cheap stock may

become an expensive stock very quickly. Take and carry on with your profits.
Even better, consider buying it again if the stock falls dramatically. Take comfort
in the old saying, "No one goes broke booking a profit." if the shares continue to
rise.

Think of selling on a so-called dead cat bounce if you own a stock that has been
sliding. Such upticks are transient and generally focused on news that is
unpredictable.

Sale stock for appraisal

This is a daunting decision: part art and part science. Ultimately, the value of
every share of stock depends on the present value of the potential cash flows of
the company. Since the future is unknown, the valuation will always bear a
degree of imprecision. This is why, in investing, value investors rely heavily on
the margin of safety principle.

If the value of the business becomes considerably greater than its rivals, a
reasonable rule of thumb is to consider selling. Of course, with several
exceptions, this is a rule. Suppose, for instance, that Procter & Gamble (PG)
trades for 15x earnings, while Kimberly-Clark (KMB) trades for 13x earnings.
Considering the sizable market share of many of their products, this is not a
sufficient excuse to sell Proctor & Gamble.

Another more rational marketing tool is to sell when the P/E ratio of a business
for the past five or ten years greatly exceeds its historical P/E ratio. For example,
shares of Walmart had a P/E of 60 times earnings at the height of the Internet
boom in the late 1990s when it launched its first e-commerce website. Despite
the consistency of Walmart, sales should have been considered by any owner of
shares, and prospective buyers should have considered looking elsewhere.

Selling stock was a mistake while buying .

You've probably put some studies into this stock before you bought it. You will
later conclude that you have made an analytical mistake and realize that the
company is not an acceptable investment. Even if it means incurring a loss, you
can sell the stock.

Instead of the emotional mood swings of Mr. Business, the secret to good
investing is to rely on your data and analysis. If, for whatever reason, the
research was flawed, sell the stock and move on.

After you sell, the stock price could go up, leading you to second-guess yourself.
It is also likely that the best investment decision you ever made could turn out to
be a 10 percent loss on that investment.

Not all analytical errors, of course, are equivalent. If a company fails to achieve
short-term earnings expectations and the stock price falls, do not overreact and
sell immediately (assuming if the soundness of the business remains intact). But
it may be a sign of real long-term weakness in the company if you see the
company lose market share to rivals.

Selling stocks for financial needs.

This may not count as a good reason for selling a stock, but it is, however, a
reason. Stocks are an asset, and when people need to cash in on their money,
there are occasions. This decision depends on the financial condition of a person
rather than the fundamentals of the stock, whether it is seed money for a new
company, paying for college, or buying a house.

4.5 How to Survive Stock Trading

These four tips on how to trade stocks will help ensure you do it safely, wherever
you fall on the investor-trader continuum.

1. Lower risk by steadily constructing positions

With every position, there's no need to cannonball into the deep end. Taking the
time to buy helps minimize investor exposure to market volatility (via dollar-cost
averaging or purchasing in thirds).

2. Ignore 'hot advice.'

On the EZ Million$ Trade website, WallStreetHotShot4721 and the people who

pay for funded commercials touting sure-thing stocks are not your friends,
advisors, or bona fide Wall Street gurus. They are part of a pump-and-dump
scam in many instances, where crooked people buy buckets of shares in a little-
known, thinly traded business (often a penny stock) and hit the internet to hype it
up.
3. Maintain good records for the IRS

If you do not use an account that enjoys tax-favored status, such as a 401(k) or
other corporate savings, or a Roth or conventional IRA, it can be difficult to tax
investment gains and losses.

The IRS applies various rules and tax rates and allows various forms to be
submitted for different categories of traders. Another advantage of maintaining
good records is that through a neat technique called tax-loss harvesting, loser
investments can be used to offset taxes paid on income.

4. Select your broker wisely,

You need a broker to exchange stocks, but don't just fall for any broker. Choose
one with the terminology and tools that best fit the style and knowledge of
investing. Low commissions and quick order execution for time-sensitive trades
would be a greater priority for active traders. To learn more, see our picks for the
best online sites for active traders/day traders.

Investors who are new to trading should look for a broker who, via educational
posts, online tutorials, and in-person seminars, can teach them the tools of the
trade. The consistency and availability of screening and stock analysis software,
on-the-go updates, quick entry of orders, and customer service are other features
to consider.

No matter what the time spent on studying the basics of how to study stocks and
experience stock trading ups and downs, even though there are more of the latter
is well spent, as long as you enjoy the ride and don't place any money on the line
that you can't afford to lose.
Chapter 5: Risk Management Techniques
Your next trade could be your last without proper trading risk management! Yet
too many day traders are unaware of how important it is. True, like hot stock
picks, it isn't thrilling, but it's vital to your success in trading. You can lose your
money in a single trade without it. The most important skill for effective traders
is risk management. "The saying is true "old traders are here, and bold traders
are here, but there are no old, bold traders.

Essentially, if you trade like a gunslinger, you're not going to be around for very
long. So how can we become great traders and remain long into our golden years
in the markets? Let's look at the basics first.

5.1 What Is Trading Risk Management?

The practical steps that you take to protect your trading account from losses are
risk management. In the first few years, the less cash you lose, the longer you
will remain in the game. And that means more time to work for coherence to be
identified.

You will sum up your months and years of experience. And you can better learn
to weigh the risk/reward of every single trade intelligently over time.

How risk management trading functions

Here's how trading risk management works from a high-level viewpoint. If you
do care of the downside, the upper side will do self-care. Does that sound
counterintuitive?

5.2 Risk Management Tips

As losses add up, it can mentally manipulate you and mess with your brain.
What, if you're not careful, may add to your losses? Frustration will cause
discipline to break you.
More than your strategies and rules, your attitude will affect your results. That's
why taking a break after losses are wise. Stop losses and retaliation selling from
spiraling.

Instead of maximizing your income, concentrate on minimizing your losses.

Small and manageable losses can regularly allow you to have a stronger sense of
control. When you don't have major setbacks, you appear to be more careful.
And note to remain humble and disciplined while you are on a winning streak.
Greed can contribute to overtrading in the same way that fear can.

Managing risk, it's a topic that often comes up in journals, books, and courses for
trading. But is that really practical? I mean, if you're putting on a trade, then you
know that the market is going to go your way, right? There are stations for
buses! FALSE. Your main trading strategy must involve risk management. The
way to make a consistent profit and ensure that you have a long, prosperous
trading career is to protect the money you have earned.

When you made 1,000 percent in 2018, then lose 80 percent in January 2019, as
I've said before, you're not going to be a trader for very long.

Trading without risk control and without a second parachute is like skydiving.
What happens if he doesn't open the first one? If you're not defending your
places, using metrics to make a profit can only get you so far.

The most popular risk control techniques used by the pros!

1) To ensure long-term sustainability, view the portfolio as a whole.

Alexander Lowry, Gordon college professor of finance. Alexander Lowry is a

Gordon College finance professor, as well as the Director of the Master of
Science in Financial Analysis program at the university. He advises that you
consider your entire portfolio, not just a collection of individual bets, as a whole.

This is his advice:

There's a trick for serious investors: individual stock selection just doesn't matter
on the whole. In the long run, what truly matters is asset-allocation decisions. It's
not the stocks that you buy. That's what matters when you buy stocks versus
when you buy bonds, gold, cash, real estate, etc.

Several academic studies show that the distribution of the portfolio (how much
of what sort of assets you own) is much more important than simply which
stocks or bonds you purchase in deciding your performance. The lesson from
these studies is that asset selection is much more important than stock picking
for your overall portfolio return. That's why most skilled investors encourage
analysts to do the stock-picking (like the top hedge fund managers) while
concentrating almost exclusively on the core allocation decisions.

Many individual investors, on the other hand, do not expend much time or
money on asset allocation management. Usually, they're totally invested all the
time in stocks. Most individual investors do not even know how to buy bonds
(which is a critical component of asset allocation), and another critical
component is doing a bad job at position sizing.

In terms of risk control, think about this by not putting all the eggs in one basket.
Maybe someone thinks today that bitcoin is going to be a home run, and they
have 50 percent of their assets invested in it. That's a gambling way too
leveraged. For an asset as volatile as bitcoin, particularly.

Asset allocation is the part of your wealth plan that deals with the sum of money
in different assets that you have. How much of your belongings are in cash? For
stocks? Priceless metals? Immovable property? It all falls under the asset
allocation umbrella. The number one aim in asset allocation is to avoid taking
too much risk with only one asset class. So when one asset class "zigs," others
can "zag." This helps you to sidestep financial catastrophe by simply allocating
assets.

The genuine advantage here is diversification. You are no longer dependent on a

good performing single asset class and will be safe from major swings in a single
asset.

2) limit your losses; use stops to

Nate Masterson, Financial Adviser: Since 2011, Nate Masterson has been a
freelance financial consultant and is currently the Maple Holistic Marketing
Manager. To minimize downside risk, he recommends the use of stop losses,
saying:

Using stop losses is one of the simplest and most effective ways to defend
yourself against the risks of a volatile market/trade. You can protect yourself
very effectively against losses or wasteful trading, i.e., trades that lose money,
rather than make an income if you know how to use them correctly depending on
the nature of the stock, product, or index you are trading with.

While the idea of a stop loss is fairly clear, it is the art of knowing how to handle
each trade individually. This is most easily achieved with business knowledge
and a general and precise understanding of the factors that independently
influence each trade, whether that is innovation in the sector/industry concerned,
foreign relations and political issues, or even something as random as the
weather. Based on your previous experience with the stock/commodity/index,
taking as much into account before setting a stop loss will help you to make a
good assumption and ultimately safeguard your trade.

As Masterson notes, the principle of a stop loss is to close your place until you
lose a huge amount of money and wipe out your account if the market goes too
far against you. Here's how to do a stop loss setting:

Setting a threshold for your trade is the first step. This is effectively the
maximum amount you are prepared to lose before selling on the trade and can
generally be expressed as a percentage of the original purchase price. However,
it is where experience really comes in handy to decide on the triggers for that
threshold as some stop losses function better when considering a high-low
average over a certain period of time, while others can simply act as automatic
'blockers' that allow you to protect your investment to a reasonable point.

Advice would be to always analyze the previous stock/commodity/index patterns

over the past week and then check any news you might find online about the
subject before determining how to position your stop loss and at what level you
want to set it or base a certain pattern of movement.

You would be best suited to protect your investment by developing a stop loss
that is both precise and practical because you have as much data as you can
obtain on the transaction before making it.

The center of your risk management plan should be stopping losses. They should
be there, whether they're real stop orders from your broker or stop losses set in
your trading system.

3) To protect your earnings, take advantage of trailing stops

Marc Lichtenfeld, the Oxford club's chief income strategist : You may make
use of trailing stops in addition to static stop losses. This is effectively a stop loss
for a long position that matches the asset price as it goes up but remains put if
the asset price begins to go the other direction. And for a brief role, vice versa.
By defending you against major moves against your position, a trailing stop
helps you to lock-in benefit as you make it.

Use a 25% trailing stop at the Oxford Club and suggest investors assign 4
percent or less of their trading capital to any one position. This way, if the stock
is down 25%, 1% of their portfolio is the most that the investor will lose, which
is an amount that is easy to recover from.

In addition, Lichtenfeld proposes that the stop be lifted every time the stock
reaches a new peak in order to preserve income and ensure that investors do not
ride a loser to the basement all the way down. And to prevent being shaken out
of stocks that unexpectedly drop only to rapidly recover, such as in a flash crash,
stops should be set on a closing basis rather than intraday.

Investors can have confidence that the move lower is for actual, somewhat than
market noise when a stock closes at or below stop.

4) Size your positions to maximize your risk level correctly

Carter Johnson, UBL holdings founder: A crucial component of the risk

management approach is role sizing. You can prevent significant drawdowns in
your trading capital by using it correctly while preserving benefit.

"Alexander Lowry says that proper position sizing is one of the most important
decisions you can make as an investor, and in volatile markets like today, it is
even more crucial.

Carter Johnson runs UBL Holdings and mostly invests in private firms, implying
that you use the model of the Kelly Criterion to calculate your positions. The
fundamental principle is that your position's size should be proportional to the
anticipated result. The predicted result is the likelihood of making again
multiplied by the amount of the gain, plus the likelihood of making a loss
multiplied by the amount of the loss.

"Some of the greatest investors and traders of all time have used the Kelly
Criterion Model. It enables one to work out how much money can be wagered
on a particular outcome with certain probabilities. In position sizing, you can
also add a way to manage against the general portfolio drawdown.

5) To reduce downside risk, use protected calls to

Born To Sell CEO Mike Scanlin: Mike Scanlin (@borntosell) has been trading
covered calls for 37 years and, since 2009, has been CEO of Born to Sell, the
covered call website. To reduce the chance of long positions, he recommends
using covered calls.

Selling call options against your shares every week or month is an easy way to
reduce the cost of owning stocks and ETFs while increasing cash flow at the
same time.' Writing a covered call" (where you own the underlying stock but sell
(short) call options against those shares) is called "writing a covered call. The
negative is that you place a limit on your upside, but to protect part of any
downside shift, you earn weekly or monthly income in exchange. You can
achieve a better risk-adjusted performance than buy-and-hold if you do this
regularly for several months or years. Today, plenty of pros and amateurs do this.
Schwab has said that 84% of their accounts use covered calls to exchange
options. It's an easy and powerful risk reducer/producer of profits.

Although Scanlin talks exclusively about stocks, for any asset, including
cryptocurrencies, this method can be used! In the crypto world, the problem we
have is that there is only one exchange dealing in options, Deribit. This makes it
tougher to deal with alternatives, but at least the option is there no pun
intended!).
You're going there! You now have insight straight from the experts. From
finance classes or other literature, you might have heard of many of these
methods before and dismissed them as pure theory. But in fact, they're actually
used, and you should use them too!

The major components of your plan for risk management should be:

Stopping the losses

Right-sizing of place
Allocating funds

In the world of cryptocurrencies, the protected call strategy is more advanced

and undoubtedly difficult to use, but the choice is there for those of you who
want to play with more advanced strategies.

"The components of good trading are:

1) Loss reduction,
2) Loss reduction, and
3) Loss reduction.

You can have a chance if you can obey these three rules.' Ed Seykota. Protect
your money, as the market wizard himself claims.

The above methods are all based on protecting your portfolio from failure, they
won't actually help you boost your profit on a per-trade basis, but they will help
increase your overall monthly and annual profit because your losers' size will
decrease when you have some other risk control devices.
Conclusion
Many investors will be well advised to develop and hold on to a diversified portfolio of stocks or stock
index funds through good and bad times. In an effort to remain in the market, stock trading requires
purchasing and selling stocks regularly. Extensive analysis is conducted by investors who trade stocks,
often devoting hours a day to monitoring the market. They rely on technical analysis, using instruments to
map the movements of a stock in an effort to identify opportunities and patterns for trading. Many online
brokers, including analyst reports, market analysis, and charting tools, offer stock trading information.

Investing is far more than a game of numbers, but if you want to understand what's going on in the market
or with your stock, you can't get too far away from numbers. The quote on the stock market, which can be
found in the daily newspaper or online, is the most basic set of numbers that providers regularly update.

The exchanges behave more like flea markets than centers of financial tact when it comes to buying and
selling shares of stock. That's why you have to grasp the deal and ask for rates. The buyer and seller both
set stock prices, unlike most items you purchase. The buyer states what price they're going to pay for the
stock, which is the deal's price. There is also a premium for the seller-the selling price.

Another mystery would seem to be stock prices and why they rise and fall as they do. Although all these
variables are expressed in price adjustments, they have no direct influence on prices. What these and other
variables do is adjust the supply and demand equilibrium. Stock traders seek to leverage on short-term
market events in order to sell stocks for a profit or to acquire stocks at a low level. Some stock traders are
day traders, which suggests that during the day, they buy and sell many times. Others are simply traders
who are involved, putting a dozen or more trades a month.

Trading strategies are plans that are introduced to maximize the chance of a positive return being achieved.
As such, efficient trading is a key factor. When designing a stock trading plan, Make sure you are familiar
with the trading platform you are using and know all the features and risk management tools it provides. An
unlimited free trial account that will help you get comfortable with the platform without losing your money.

Decide which inventories you are going to trade, know how they run, and keep up with any news or events
relevant to them. Consider general trading strategies such as intraday trading, swing trading, trading of
positions, and social trading, and decide the one which is best for you. Set price notifications for your
favorite stocks so that your expected entry points do not miss you. To limit your risk, identify your exit
points, and set stop orders. To help you recognize and analyze patterns, use metrics and drawing methods.
Check the plan and adapt accordingly. It will improve the chances of getting a successful trading experience
to know when what and how to trade. You must also bear in mind that trading can be dangerous, so it is
always better to develop a knowledge-based plan, test it, and stick to it.