Stock Market Basics
Rule 1: Focus on Price
Knowledgeable traders follow a very different set of criteria. These traders focus on a single consideration: price. It may be a poorly run company but, if conditions call for a concise improvement in its price, it’s a good buy for the trader who knows when to get in and when to jump out for a quick profit. On the Contrary, a great company will sometimes climb out of its comfort zone to a price where suddenly there are more willing sellers than buyers. Price is about to fall, and it’s the short seller who will obtain the benefits.
Rule 2: Stay Liquid
If Trader interested in this much more practical view of stock market basics, here are some guidelines to know about. First, the stock has to be actively traded, at least 100,000 shares in daily volume. Below that level you run the risk of being stuck in a position simply because there are no traders on the other side. Second, you should stick to tickers with a price below $50 simply because the liquidity requirements above that level become distracting for most traders.
Rule 3: Practice Before You Enter In
Finally and most important, rather than investing in the broad market you should consider following a few tickers and getting to know their trading range very well. This is a stock market basics approach focusing on price, remember. Once the trader know where it “should” trade then trader will be well positioned to identify a depart from the standard and act quickly for a positive result. This is the opposite of “buy and hold” because trader may load up on a stock in the morning, dump it in the afternoon or a day or two days later, then buy it again when conditions change. It is an atheist approach to the markets in which the most important deliberation is your own desire to be successful.
Rule 4: Don't Try to Out-Think the Markets
A company in a sector has a bad quarter, or maybe a product recall, and all stocks in that sector declines even though the other companies have done nothing wrong. It is irrational but that is how the market works. Similarly, ordinary companies will go up in price when the market is blistering.
In this basis of the patented trading strategy, traders don’t need the markets to be logical. Trader simply wants to identify the zones where supply and demand are likely to be out of balance, then buy or sell when price enters these zones. There are large quantities of unfilled buy or sell orders at these price levels and, once the orders are filled, price will change direction regardless of what else is occurrence in the economy or the market.