The Infamous NYSE | New York Stock Exchange
If you are scared to get into investing, you’re not alone. Over 3/4 of retail traders lose their money. But what is exactly is the stock market and how does it work? The stock market was created in 1817 on the very same street, Wall Street. The very basics of the stock market work as follows:
How it Works
A company wishes to give part of their company shares to the open public at price X. By doing so, it must list on an exchange i.e. Nasdaq, S&P, Dow Jones and it must adhere to the financial obligations and rules to share their profits, losses and board member activity. For the sake of making this easier think of it this way :
Company X wants to list 10 percent of their company as common shares into the market. That 10% is then listed as X amount of shares priced at “y” dollars. Once the stock is listed, it is said that the stock has “IPO’d” or has offered an initial public offering. Each second, shares are offered at a specific price. If there are more buyers in a stock, then the price of that stock goes up. If there are more sellers, the price of that stock shoots down.
The ask price is what you pay if you were to buy it– and the bid price is what you pay if you were to sell it. The ask and bid price are usually a very cents off (depending on how large the stock is). This process continues into eternity which causes the price to fluctuate. Good earnings, bad earnings, rumors and/or acquisitions are the primary reasons why stock prices become more lucrative or less lucrative. Board member changes, bad press releases can all contribute to the fluctuating price of a stock.
How Can I Get Started?
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How Do You Purchase A Stock?
Typically, you would need a broker. A company that executes the buying and/or selling on your behalf for a commission/fixed price. TD Ameritrade, Etrade and RobinHood are the most commonly used brokers to buy or sell stocks.
What is a bull market? What is a bear market?
The terms bull and bear are referring to a market that has mostly stocks going up and increasing in value. When people say bulls are in control today, it means that the stock in question is generally moving up. A bear market is the exact opposite. When stocks start to decline in price, we refer to that period as a bear market.
How Do I Pick Profitable Stocks?
That is the million dollar question. We are all trying to figure that out with the least amount of losses. The truth lies within your own strategy, how disciplined you are and how long you are willing to wait. Do you wish to be a long term investor or an actual trader? These are all questions you must figure out before you start a side or full time career that dives deep into the world of stocks. Here are the 5 legs of picking a successful stock
- Volume – Is the amount of trading on that stock above average? Are there ample buyers to the sellers in its ration?
- Technical Analysis – Using Japanese candlesticks, we can learn about the behavior of a stock for any given period. Using these patterns and indicators we can hypothesize where the price is headed
- Ownership/Health – How is the board of members doing? Are there any bad seeds in the operations and/or executive department? Are there rumors? Do they have bad press? good press?
- Earnings – Each quarter, every company is required to report their earnings. We get an idea of their sales, revenue and most importantly EPS.
- Dilution/Acquisition – Often times companies can offer more shares into the market to attract more buyers. However, adding more shares into the market lowers the value of the current shares.
What Strategies Can I Use?
We employ a handful of strategies, but they honestly depend on market sentiment. Sometimes, you have to settle for 10 percent gains, while others have 60% in a single day!