A stock market is a market for the trading of publicly held company stock as well as associated financial instruments such as stock options and stock index futures. On the other hand, stock market trading is the buying or selling securities or commodities specifically in the stock market.
There are two basic methods of doing stock market trading. Traditionally, stock markets where open-outcry where trading happened on the stock exchange floor. The more modern way of doing stock trading is through electronic exchanges where everything occurs online real-time.
Stock market trading via the exchange floor could not look any more chaotic. When the stock market is open, hundreds of people are seen rushing about, shouting and gesturing to each another on the exchange floor. Traders are also often seen talking on phones, keeping a close eye on the consoles and entering data into terminals.
Online stock market trading moves the trading off the floors and more into the networks. The electronic market employs a vast network of computers to match buyers and sellers instead of human brokers. While lacking the excitement of the usual stock market exchange floor, it is faster and more efficient. Investors frequently get an almost instant confirmation on any trades done.
How does stock market trading work? Be it on the chaotic stock market exchange floor or electronically, one needs to get an investment broker first.
For traditional exchange floor trading, after asking a broker to buy a certain number of shares at the market, the broker's order department sends this order to the clerk on the floor. The clerk alerts a trader who finds another trader who is willing to sell the shares the investor requested. The two traders agree on a price for the stocks and close the deal. Notification is sent back the same way until the broker calls the investor to inform him of the final price. This process may take a while depending on the market and stocks. Days later, the investor receives the confirmation mail.
The electronic counterpart is less complicated because the stock buying and selling are matched by the computers in real-time. And the investors get instant updates on what happens to his stock trade.
How To Invest Stock Market
Recently, Lisa and I were waiting to be seated at a Kittery, Maine restaurant. The hostess stood to our left; we sat waiting. I avoided looking in her direction until Lisa said, "I like those jeans." Well, we both acknowledged the jeans and the genes. I said to Lisa, "Now that's a bottom to notice."
Stock market bottoms have some common technical curves that arouse investors. Unfortunately, what the investor sees often distracts them from what matters.
On Tuesday,February 27, 2007 stock market watchers awakened to a surprise. On Monday night, stocks looked just O. K. However, there were some signs of concern within the shadows of a "Goldilocks" economy. Here is what happened.
For a number of weeks prior to February 27th, markets bounced up and down on news. Neither upward moves in the market nor downward moves were driven by much conviction. Usually, this rings bells for a few market observers.
"No fixed time can be set for the readjustment of values which always follows an era of extravagant expansion," writes Cuthbert Mills in his article, "Recent Movements of the Stock Market". [The North American review. / Volume 146, Issue 374, January 1888] (You knew it was old when reading the name "Cuthbert.) Mr. Mills marks ages of extravagance from 1807 to 1887 when the U.S. headcount was 60 million.
Market bottoms or corrections have distinct patterns. Past predicts the future, the present mimics the past, and extravagance is an attribute of any long-term bull market. Cycles repeat, excesses get squeezed, and progress continues.
Market corrections do have inherent and intrinsic patterns. Some market observers look for new paradigms to assuage the investor. Despite those assertions, markets function axiomatically: "Irrational exuberance" gets trumped by rational commitments.
At 4PM Monday February 26th, markets grabbed "irrational exuberance" by the throat and squeezed 546.20 points (4.3 percent or $632 billion)from the Dow Jones Industrial Average. At 4:30, the Dow ticked-off investors by 416 points.
Global markets rang dissonant bells as bears chased investors from London to Tokyo. Goldilocks met the wolf and the bear on 15 Huang Pu Road in Shanghai. The wolf and bear gorged 9 percent of Chinese stock value, where this market correction started.
In 1986, brokers celebrated every trading week with catered celebrations. My brokerage firm manager said, "Watch out; with every party there's a hang-over." October 19, 1987 proved his point.
Just the same, markets historically have recovered. Here are a few indicators when the bottom is near or at hand.
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Prior bull market leaders build bases (usually during a 7 week time-frame)
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New market leadership emerges (i.e. new asset class leadership)
Trading volume on days when buyers sell stocks is lower than the days when buyers accumulate (institutions committed)
"You want to stay in phase with what the market is actually doing, not what you hope it will do or what other people think it should do," Investors Business Daily founder William O'Neil wrote in "The Successful Investor" (McGraw-Hill; 1 edition, September 1, 2003. Implement asset allocation models to participate when asset classes move makes you a historical (not hysterical) investor.
Take a long-term view. Further, recognize that diversification matters within and outside the market. Do you own a home? Take care of it as an investment asset. Are you able to add investment property to your portfolio? Search it wisely. Is there a private business worthy of your investment dollars? Read the business plan...investigate the principals...find their competition.
Don't chase bottoms (of any sort). Too often investors step into the path of a marauding bear market whether the stock market or the real estate market.
Wish I could remember the source of this story: Baron von Rothschild had a clerk running back and forth reporting stock market moves. Markets collapsed...the clerk kept saying, "It's worse...when do we buy?" Rothschild calmly replied, "When the blood is spilling on the streets."
Don't celebrate, or as I tell my children sometimes, "Don't get cocky." Greed breeds stock market tops, and fear instigates stock market bottoms. Casual indifference does not a market-bottom make. Pale, anemic looking investors, licking investment wounds provide graphic evidence of a market bottom.
Today, the Dow Jones Industrial Average trades at 1215; the first close above Dow 6000 was October 14th, 1996 (it took 112 years to get to that level). A 10% correction (standard and expected) equals 600 points. At 1215, a ten percent correction is 1,215 points. If it happens in a day or a week, imagine the panic, and then watch for bottoms.
Whatever choices you make, seek a long-horizon. Warren Buffett purchased his first stock at 11 years old. He bought at $37 and sold at $40 only to observe the stock climb 163 points to $200. He attributes his long-term views to this experience.
Buffett did not limit investments to stocks (and he still doesn't). When a teenager, he earned $1200 from his paper route, bought farmland, and leased it to farmers.
Too many for too long find the stock market their treasure chest . Seek opportunities across the scope of investable assets. Remember to research the market, buy at the right time, and for the correct reasons.
Both Nicky Pilkington & A Raymond Randall are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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