Guide to the Stock Market

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How To Make Money In Stock

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The first and the most important step towards making money in stock trading is to acquaint yourself with various concepts associated with it. This will help you to make independent and informed decisions rather than depending upon borrowed knowledge. Here are some of the important points to consider while investing in stock trading:



Learn where to invest your money

Before you decide where to invest your money, it is important to keep in mind that you should never try to invest in ?markets?. Only huge financial institutions like index future traders or mutual funds worry about market indexes. Try to ignore most of what you hear about the so-called ?markets?. Do not try to understand where the market is going because market is a collection of major stock indexes. Therefore try to free yourself from the opinions of mediocre mutual funds and financial planners.

Instead, you must learn to find out the good but cheap companies to invest in and hold your stock till they grow to reward you with good profits. The key to success is to clearly understand the true worth of the company. Then you can use the age-old formula of buying low and selling high. You should identify a good company, wait till its stock price falls below its true worth by a tempting margin. Once you buy its stock, you need to keep track of the company's value. You should sell the stock when its price rises to an uncomfortably high premium to its true worth, so the basic lesson in stock trading education is that all your trading decisions should be guided by comparing the company's stock price to its true worth and not by rumors of what a hot stock at a given moment is.

The basic criteria in selecting a good company should be to ensure that it is in a strong industry and is growing as well. For example, Coca Cola Enterprises is one of the largest companies in the area of soft drinks. This makes its stock an attractive investment option. Although it is better to find out a good new and rapidly growing company, the job of finding such a company may not be easy. Using two tools, fundamental analysis and technical analysis can do it.

Fundamental Analysis

Fundamental analysis helps the investor to understand the company's current management and its position in the market. It also enables an investor to understand if a stock is overvalued, undervalued or is trading at a fair price. This can be determined by applying the concept of intrinsic value of the stock. Fundamental analysis involves examining the information regarding the company's future anticipated growth, sales figures, cost of operations and industry structure besides many other factors. This exercise provides the intrinsic value of its stock. According to those who rely upon fundamental analysis, the market price of a stock tends to move towards its intrinsic value. If the intrinsic value of a stock is above the current market price, the investor should buy the stock. If, however, the intrinsic value, according to the fundamental analysis, is below the market price, the investor should sell the stock, or, take a short position in the stock.

Technical Analysis

The other way to find the true worth of a company is to go for the technical analysis of its stock. This method is based on studying the charts, which help you to identify the market trends of the stock and invest accordingly.

An easy way to use the charts is to study the candlestick charts. A candlestick chart reveals several basic pieces of information in every period of time, it may be daily, monthly or yearly basis.

Technical analysis studies the past price movement of a stock with the help of charts. This helps in understanding its future performance. Every investor tries to analyses the future price of a stock on the basis of its past performance almost every day, whether consciously or unconsciously. He tries to determine whether the stock price is going up or down in the near term and the odds of that trend continuing.

It is advisable to use both the perspectives to view a stock and double your insight and understanding about whether or not to invest in it.
How To Make Money In Stock
Forget about the wonderful stock trading price movement behavior in 1999. Forget about 2007. Yes those were good years mostly attributed to the euphoria created in large rapid uptrends. The key to successful stock trading is to just focus on the "bread and butter" next high probability 10 to 20 point move and go forward.

Good stock traders look forward to the next "bread and butter" opportunity and do not get caught up in euphoric price movements.

Good stock traders are good in stock trading because they keep their focus plain and simple on the doable, high probability trading opportunities.

How to make $100,000 in stock trading:

Let"s say you"re trading a stock that can easily make a 100-point move any by 1000 shares of that stock. Over a hundred point gain you"d make $100,000 profit. The question is how many stocks make 100-point moves frequently?

Did you know that you could make the same amount of money from a 10-point move versus a 100-point move in a stock? You don"t need those huge point moves of the old days like you may be thinking. Why?

You could also make $100,000 by buying 10,000 shares in a stock that moves 10 points. How many stocks can move 10 points on a regular basis? A lot! And the issue comes down to your Stock trading system for showing you when to get in and out at the right time. Your Stock trading system has to allow you to enter with pinpoint accuracy so you can define a tiny stop loss when you purchase this many shares.

When trading a lot of shares you need to be extremely careful to acknowledge your risk. Lack of understanding of the potential for loss due to indecision, lack of a plan, your error, random market surprises will cost you money. So learn as much as you can and as fast as possible. You can accelerate your learning pace this by purchasing home study courses of successful traders, reading books, attending seminars and subscribing to trading newsletters. Doing so can save and make you potential millions of dollars over time" just ask any other successful trader and it will tell you the same. You need to keep learning until it all "clicks" for you.

Now what if you used options instead of stock? 10,000 shares of stock on a $50 stock costs $500,000 or $250,000 on margin. You could buy 100 contracts of options for $450 contract for $45,000 instead. Of course, if you're just getting started you could reduce the number of options contracts or shares of stock down to whatever amount you want, so don't be intimidated, but be excited for the day you can swing around 100 options contracts or 10,000 shares of stock.

Traders who make a lot of money in the stock market have an aggressive mindset. Their main concern usually is not worry about whether or not the next particular trade will put or take away food from their family"s table. They are beyond that and have taken care of that.

The ones who actually make money and keep it tend to be 100% aggressive with zero doubt or worry, focused on their desired outcome. The mindset of what we call "complete aggressiveness" (towards the desired outcome) actually takes care of risk management because losing is not in the desired outcome. Any bad behavior in stock price movement is immediately eliminated even at the expense of missing the opportunity.

Please reread the previous paragraph. That paragraph can be a life altering mentality for your stock trading.

In the study of success and failure the successful and wealthy tend to focus intensely on what they want. While the unsuccessful and not so wealthy tend to focus on problems, on worries or if they can't find any problems or worries they tend to make new ones up. It's quite amazing how people cling to and find comfort in being worried. Sometimes people are much more afraid of success than failure and that sad. So why not make up your mind today, right now, that you are going to claim what you and focus on it with 100% concentration. And guess what? You may find out that problems and worries will tend to take care of themselves by focusing on what you want. Now apply this to your stock trading.

But the question is: "How do I take care of risk in trading stocks and options so I can be as aggressive as I want?"
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About Author
Both Vijay & Chris Viscaya 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.

Vijay has sinced written about articles on various topics from Investing and Trading, Painting and Investing and Trading. Why Choose Sogotrade: Contact sogotrade:. Vijay's top article generates over 49500 views. to your Favourites.

Chris Viscaya has sinced written about articles on various topics from Investing and Trading, Finances and The Internet. Chris Viscaya is a head trader at OPIVO Trading specializes in trading a unique pivot point strategy on stocks with options off. Chris Viscaya's top article generates over 4400 views. to your Favourites.
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