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[U31]Understanding The Stock Market

by Joel Noah, Joe

To understand the stock market you first need to understand what stocks are. Stocks are the capital raised by a company when they sell shares. Shares are offered through the stock market and the money taken in from those becomes the company's stocks.

There are several major stock exchanges in the world where shares are traded. Company's stocks are increased and decreased each day.

One of these stock markets is the NASDAQ. NASDAQ stands for National Association of Securities Dealers Automated Quotations. The NASDAQ is a United States based stock market. It's the world's first electronic based stock market. It also trades more shares each day than any other stock market which means it has the most impact on stocks.

Another large stock market that is United States based is the Dow Jones Industrial Average. You might hear someone say that the Dow is up or down this is what they are referring to. Many stocks are introduced on the Dow.

Many other countries also have a great impact on stocks. In Europe almost each country has their own stock market this includes Portugal, Germany and Lisbon. The people living and working there follow invest in the stock market there and just like in North America the stocks rise and fall.

The people who handle the buying and trading are called stock brokers. Their job is to sell and trade the shares that their clients request. It's a demanding and rewarding job being involved directly in stocks this way. Stock brokers can make a lucrative income and the ones that study the markets and understand all the ups and downs have a definite advantage.

For the everyday person to get involved in stocks they need to do a bit of research. It might be wise if a large amount of money is involved to talk to a stock broker. Their job is related to stocks and no one is better qualified to assist you.

Stock brokers are paid on commission and therefore their drive is to invest in shares that will ultimately turn a profit. Often a stock broker has extensive knowledge with just a few stocks and he concentrates on those. If you decide to invest in a share that a certain stock broker is very well versed in, it might be prudent to have him or her handle your dealings. They can offer the best advice as to when to buy and when to sell.

There are other avenues available for people interested in stocks and that's the online stock trading companies. Many of these companies allow anyone to sign up and buy and trade their own shares. This can be a great way for someone to be introduced to the world of stocks and with some research and practice they can make themselves a profit.

Understanding Stock Market Movement
Given enough time investing in the stock market, a trader will tell you that the research and analysis require the most time. In order to be successful, an investor needs to understand how the markets move and how to interpret differences in the various market indexes and what they mean. This kind of evaluation becomes an important part of an investor’s technical analysis of the stock market. It can add further clarity to various stock market movements and help an investor to find potential trades.
Let’s start this review by looking at each of the big three market indexes:
•S&P 500 – This market index is most commonly used by professionals in the financial world because it includes such a large sector of the market. It includes 500 of the most widely traded stocks and because it is a market cap weighted index, changes in larger companies tend to reflect more strongly than small cap stocks. The S&P 500 tends to be a more accurate indicator of market movements than the Dow.
•The NASDAQ Stock Market Composite – Even though this market index includes all of the stocks that are listed on the NASDAQ market, it is historically weighted toward technology stocks. This condition is the result of the fact that it is a market cap weighted index and thus the large cap stocks of technology companies strongly influence this index.
•The Dow Jones Industrial Average – This is the old-timer of the bunch. The Dow is the oldest, most widely known and most quoted of all the market indexes. The Dow tracks 30 of the most influential companies in the US and because it represents only large companies, it misses out on the small and mid-size companies completely. Unlike the S&P 500 and the NASDAQ, the Dow is a price weighted market index which means that if a stock price changes by $1, the effect on the market index is the same no matter the price of the stock. The Dow reflects only about 25% of the total market but changes in the Dow tend to reflect consumer confidence in the stock market as a whole.
What perspective does each index take?
Because each of the indexes takes a different approach, the stock market movement for each is different. For example, the NASDAQ structured so that technology stocks enjoy greater prominence that those in other stock sectors. This was evident in the late 1990’s when the technology boom was taking place. As events unfold that effect the technology sector, the NASDAQ will tend to see the most dramatic stock market movement, although the Dow will also be significantly affected.
The S&P 500, on the other hand, is not as severely impacted by tech stocks but tends to have a stock market movement that more accurately reflects the market in its entirety. Because it is weighted to the larger stocks it does not have the violent reaction to Wall Street news that its small-cap stocks might cause. The overall balance of the S&P 500 causes a more accurate representation of market movement than the Dow. This is the reason that most financial professionals use it as their barometer for stock market movement.
The Dow is the interesting one of the bunch; the granddaddy of the market indexes, it looks only to the 30 most influential stocks for its analysis of market movements. These are all large-cap stocks so they do not accurately evaluate the entire market, yet the Dow has proven to be the best market index for indicating consumer confidence.
Conclusion
No one index gives you the entire picture of stock market movements. The combination of the three can help you draw better conclusions about the market movements and what is motivating them. Activity by the tech sector will appear with strong reactions by the NASDAQ. Strong movements by the Dow can indicate whether the consumers are feeling good about the market in general. The Dow, though weighted to the top, will be a better indication of the overall stock market movement. By considering all three, successful traders can locate where highs and lows in stock market movement can be found and invest accordingly.

Article Source : business and corporate

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Both Joel Noah & Stephen Bigalow Bigalow 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.

Joel Noah has sinced written about articles on various topics from Computers and The Internet, Computers and The Internet and computers and the internet. . Joel Noah's top article generates over 18100 views. to your Favourites.

Stephen Bigalow Bigalow has sinced written about articles on various topics from Investments, Futures Trading and Investments. http://www.candlestickforum.com/PPF/Parameters/1_21_/candlestick.aspA site dedicated to investing using Japanese Candlesticks.. Stephen Bigalow Bigalow's top article generates over 33100 views. to your Favourites.