Success Trading: More Basic Terminology for New TradersWritten by Chuck Cox
One important aspect of trading markets is to understand how to feel it’s overall pulse. In stock market, this is measured by measuring movements of selected stocks across various sectors to let us know how market is doing in general. A gentleman by name of Dow came up with this concept and today we still use his Dow Index for purpose of measuring market’s pulse. There are also several others out there, but another popular index of mostly technical stocks is NASDAQ.Bull Market – This describes a market where overall market is rising. Typically, this is measured by NASDAQ and Dow Indexes. Experts recommend that you only buy during Bull Markets because odds are much more in your favor – this is true, but keep in mind there are plenty of stocks that plummet during Bull Markets too. Bear Market – This describes a market where overall market is dropping. As with Bull Markets, again we measured this by NASDAQ and Dow Indexes. Experts recommend that you only sell short during Bear Markets because odds are much more in your favor – this is true, but keep in mind there are plenty of stocks that rise during Bear Markets too.
| | Success Trading: Yet More Basic Terminology for New TradersWritten by Chuck Cox
In this day and age of online brokers for virtually every market out there, there are some very useful tools that will help protect your account and lock in profits when you have them. It is our recommendation that you use a good online broker and take advantage of not only low commissions they offer, but also automated tools that are available. These tools are virtually idiot proof if you use them. The number one reason that people’s accounts go belly up in markets is because they lack discipline to stick with their trading plans and let emotions drive their trading decisions. This approach is a guaranteed way to lose in markets. Oh, you might get lucky on occasion, but eventually market will take your money. Let discuss some of trading tools we’re talking about.Stop Loss – Also called a “stop”, this is price at which your position will be automatically closed. If you buy IBM at $50 per share, and then enter $45 as your stop level, then your position will be sold when price hits $45. So this enables you to protect your account from a large loss. Bear in mind, however, that this stop level only “triggers” closing of position and doesn’t guarantee you’ll get out at that price. A quick price drop might mean your order was executed at $42 instead of $45 because of market volatility – but this would be an extreme case. Also, if you carry position overnight and IBM opened at $40, then that’s price it would be sold. Keep in mind that if you had “shorted” IBM at $50, then your stop would be placed above $50 to protect your account. When stop is triggered on a short position, you would be buying to cover position.
|
