An Investment Primer for Aspiring Stock Market Sharks

The stock market is a fickle being. One week, investors are riding high and raking in dividend profits, the next, all we see on TV is a mad rush of Wall Street types frantically trying to sell off their shares to cut losses. The market can be a difficult and dangerous environment for a new investor hoping to build a nest egg for the future. As well, conflicting information regarding just about everything having to do with finance makes the waters even more turbulent. It’s no wonder then why first time investors often find themselves overwhelmed and hemorrhaging money.

Don’t sweat a portfolio dip

Often, novice investors get bogged down in hollow advice or overcompensate for their lack of understanding with a hard buy in on a bad stock that tanks their overall portfolio value. As a point of caution for investors who have already stumbled into one of these traps – often the best thing you can do when sitting on a stock whose price has dropped off significantly is nothing at all. Stocks rise and fall, this is the hallmark of stock trading. Wait for the next rise to lessen the blow or even turn a small profit.

The best way to enter into the world of financial gains is with an open and educated mind. If you want to succeed, you need to both understand that you will lose money from time to time, and that each of these losses can be great learning opportunities to hone your craft for the future.

Common sense trading rooted in analytics

Most tried and true trading strategies are based in metrics analysis of the market’s trends – whether daily, hourly, or minute by minute. This does not mean that you will be required to sink yourself into weeks of studying in order to learn how to turn a profit in the market. Many of these strategies, like basic and advanced swing trading strategies have their roots in analytic models, but rely primarily on sight cues that even a novice trader can pick up on.

Swing trading in particular can be an extremely useful tool for new investors. This method relies on the candlestick model and a commonly available data point called the Bollinger band. Simply put, swing trading requires identification of the candlestick movement breaking the upward bound of the Bollinger band, signifying that the stock price is ‘overheated,’ so to speak. This tipping point signals that the stock will likely experience a sell off and a lowering of the price to match the ‘cooling.’ Once you see a large drop closing toward the lower bound of the candlestick – often classified as a “bearish” movement – you know the selling is legitimate investor selling and not computer generated price movement. This is the time to sell. Likewise, when initiating a buy, look for the price to dip below the Bollinger band followed by a large “bullish” candlestick movement. This will signify a likely leap in price to come.

Swing trading is a great way to enter the market because it is rooted in robust market analysis and uses important market metrics to judge the movement of a given price. While fundamentally sound, the investor utilizing this strategy does not need a rich understanding of these metrics in order to capitalize on them. This method, along with many other introductory trading fundamentals, requires only the ability to identify trends based on the convergence of a few key factors that you can visually see without an added analysis of the underlying cause of price movement.

Once you have become familiar with the fluctuations of price as it relates to these simpler metrics, you can begin to broaden your understanding of price movement in general. As well, the more you use strategies like this the better you will become at spotting a developing price swing, leading to even greater returns and more frequent successes. Stocks are all about practice and good fundamentals. Build these and you will be on your way to a healthy financial future.

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