Part 1 – What the stock market is all about
In any business or moneymaking venture, preparation and foreknowledge are the keys to success.
Without this sort of insight, the attempt to make a profitable financial decision can only end in disaster and failure, regardless of your level of motivation and determination or the amount of money you plan to invest.
In the stock market, this rule applies to the nth degree, as you are investing your own money in what could be considered a high risk wager, and you are playing with fire if you do not have at least a general background knowledge of how it functions.
Since having a background in any area is helpful in guiding you down a path in that particular region, the more solid your basis of investment knowledge is, the more likely you are to profit from any attempt to trade on the open market.
In many ways, trading on the stock market can be compared to driving – you do not have to be an expert to get behind the wheel of a car, though you are expected to have some previous knowledge about basic traffic laws, including moving violations, safety regulations, and other legal vehicular infractions, which are learned through either specific study and coursework or even through some form of simple exposure (such as the years you have spent riding with your parents and others who have driven for years).
You should be able to comprehend the basic tools used to navigate a car (where the break pedal is located versus the gas, and how to use the rearview mirror, for example), even if you have never touched a steering wheel.
The same is true in entering the world of the stock market.
While you do not have to know all the terminology (you will not be short selling or determining your own long and short positions at first, so you do not have to understand these references completely, though you should be aware of them), you should certainly be versed in the basic functionality of trading stocks, bonds, securities, and other commodities.
And just like someone who is behind the wheel of a car and getting ready to touch the gas pedal for the first time, you should start out with caution and work your way in slowly.
A first time driver will first set the mirrors to his or her own liking, then put the car in gear, look for any interfering traffic, and ease onto the gas pedal, never flooring it and testing the engine coming out of the gate on the first attempt.
Likewise, when you select your first investment, you should choose something stable with little fluctuation and not invest a large sum of money on this first venture.
When a person is learning to drive, he or she will be accompanied by another individual who is more experienced and can assist them in making better driving decisions and offering corrections that will aid in learning to handle the car more efficiently.
In the stock market, there are stockbrokers and other experts who can give you input and advice to help you in building your knowledge of the commodities in which you are interested, essentially “steering” you toward better stock market buying and selling decisions.
You could spend hours and hours researching the stock market and its functionality, learning how to become involved in the trade and who to contact to get in the game, especially if your interest lies in the Foreign Exchange Market, which goes far beyond the level of complication of the domestic stock market.
However, in this report, you will find all the basic information you need to get started down the path to trading success.
All of the leg work and tough research has been done for you, collecting the data and knowledge into one source from which you can gain enough insight to make you a successful trader on the open market.
All you have to do is read in order to gain knowledge and wisdom, step by step that will bring you to a heady level of success.
In this ebook, you will find all such helpful information, all brought together in one single source for ease of reference.
Next time we’ll be discussing a little about “Stock Market Trends”.
Part 2 – Stock Market Trends
Understanding stock market trends can make your job of earning money in the market much simpler. In contrast, if you know little or nothing about these trends can cause serious loss.
Bulls And Bears
As you dig deeper into the market and learn more about the way it functions, you will begin to hear certain terms about marketing trends that seem to be repeated over and over again.
Market trends are variable and volatile, both on a daily basis and over extended periods of time.
In the past, for example, the United States has had devastating stock market crashes, but due to the freedom of a capitalist society, the American economy has always eventually rebound.
What does it mean for the market or a particular stock to rebound?
Assuming that the value of a company or its stock has plummeted to a level that seem unrecoverable, leaving it practically worthless, it may feel as though that company is in danger of bankruptcy and falling off the scope of the free trade markets altogether.
All of a sudden, however, the founder of that company may introduce a new product over which consumers go wild.
Everyone wants one, and this product may be in short supply upon its introduction, causing a race to the department store shelves.
When such a move occurs, the law of supply and demand will take over, making the company valuable once again.
The stock price for that company’s shares will recover, and the resulting gain in value would be considered a rebound – a return to the original status (or better) prior to the devastating loss.
The market trends either up or down, and there are specific references to strong changes in the market values that you may frequently hear.
If several different areas of the market are in a steep downward slide, with values dropping rapidly (perhaps even ten or twenty percent in a few days), it is referred to as a bear market.
You can remember this reference as though you are in the extremely dangerous position of being chased by a bear – if you are in possession of several stocks or other commodities worth a goodly sum, you have a serious chance of losing a great deal of value that could translate to a loss of net worth should you choose to sell, and it can be a similar, very dangerous situation.
Your best bet in these cases is to either sell before prices drop below your original purchase price or to hold onto the shares until the market rebounds.
However, when the bear market reaches a low point, it can be an ideal time to get into the game, as it is rare for prices to drop below this point.
Then, if you patiently await the recovery or rebound of the market, you can make a great deal of money from a bear market. These options will be discussed in more depth in later chapters.
At the same time, a bull market is a strong general upward trend for many stocks. You might compare this to the running of the bulls in Pamplona, Spain, every year.
You are safer if you are indoors when the running occurs, and by the same token, if you own stock during a bull market, you are in a prime position to increase your net worth and sell your shares, making a great deal of money.
This is another idea will be further explored in greater detail further on in this ebook.
Next time we’ll be discussing a little about “An introduction to forex”.
Part 3 – An introduction to forex
Forex is the nickname for the Foreign Exchange Market. In the United States, there are several branches of the stock market, each with their own name.
For instance, some stocks trade on the Dow Jones, others on Nasdaq. Of course, all stock market transactions in the United States take place on the New York Stock Exchange (NYSE).
In other countries the same is true. There may be one or more distinct markets.
However, international trade takes place on the market termed the Foreign Exchange Market, or forex.
Several countries across the world in almost every time zone participate in trade on forex, with multiple currencies being utilized and stocks and commodities from all participating countries being offered for trade.
Because there are so many nations and time zones involved, forex does not function as a “business day” entity like most domestic stock markets.
It remains open for trade 24 hours a day, 5 days a week.
Of course, these additional hours increase the risk factor intensely for those of us who are human and obviously cannot monitor our investments 24 hours a day.
This means that the value of your holdings could potentially plummet overnight, while you sleep, because other countries are still trading while you are in a dream world.
Again, it is like a car – there are many moving pieces under the hood, and just because you cannot see them does not mean they are not functioning.
This is one reason for several safety options, like limit orders, which we will discuss later.
This is also why it is strongly recommended that your first attempts to make money on the stock market are not transactions that take place within the Foreign Exchange Market but on a standard nine-to-five domestic trading market.
In our car analogy, this would be comparable to having asked someone who has never driven or even changed the oil in a car to rebuild the engine.
While the functionality of forex is the same as a domestic stock exchange, the commodities and prices are more volatile, and there are additional factors to take into considerations besides the typical risks associated with a domestic market.
You will have to contend with not only the value of your stocks and your currency, but also the foreign currencies involved in any trades or exchanges on forex, as well as the inconsistencies of values of particular goods and services across international borders.
It is like driving a car with a standard transmission as opposed to an automatic.
Next time we’ll be discussing alittle about “Understanding currency conversion”.
Part 4 – Understanding currency conversion
When you begin trading on forex, you have to learn how to convert currencies and note the difference in values, as well as how currencies are exchanged between international lines.
This means studying not only domestic market trends and currency values, but also those of foreign markets.
Working With Multiple Currencies
Since forex is the Foreign Exchange Market, you obviously cannot expect everyone within the market to trade in U.S. dollars (and why not, you might ask? – but remember that not everyone covets the U.S. dollar).
With so many variables and volatile currencies being exchanged, how can you know a good buy or sell when you see one without complete awareness of the value of foreign currency?
The first step is to find a source that will give you a basic idea of the current exchange rate between your domestic currency and the foreign currency in question.
You should do this as a base listing for any currency that with which you might become involved.
Of course, this will not be consistent down to the cent or fraction of a particular currency throughout an entire business day, but at least you will have your starting point from which to begin, almost like North on a compass.
Such sources can be found all over the Internet, as well as through many brokers, both on line and in person.
It is also good to understand the means by which the currency conversion is expressed. The comparison is usually made in a ratio known as the cross-rate.
In this configuration, the two currencies are listed in an XXX/YYY ratio, with the XXX position referred to as the base currency.
The base currency is usually expressed as a whole number, while the YYY position is expressed as the decimal that most closely matches the based currency rate.
It is sort of like making reference to miles per gallon or rotations per minute on a car – a direct comparison of one to the other in the form of a ratio.
Next time we’ll be discussing a little about “Understanding statistics”.
Part 5 – Understanding statistics
You have now become somewhat familiar with how the stock market works, and you understand to a point what is involved in trading on the Foreign Exchange Market.
Now, you would like to know how to gauge market trends in order to profit from your business ventures on the open market. We are no longer discussing penny stocks and playground games.
You want the real goods.
The name of the game is statistics, and the first rule is that you must be aware there is no such thing as a sure thing on the stock market.
While you can never be 100% sure at any given time of the next move that will be made on the market as a whole, being able to read statistics and interpret them will place you ahead of the pack in regards to “guessing” what will happen next.
Investing is a lot like gambling. If you can keep track of the cards that have already been played, you are more informed, statistically, regarding what is likely to be dealt next, meaning you can place a bet with greater insight than someone who has no clue what has already been played.
With the open market, if you have information as to what has already occurred over the past few days, months, or even years, you are again placed in a better position to more logically conclude what will happen next.
You simply learn the pattern and follow it to the end, reaping the financial rewards.
Charts And Chartists
Wait, did you think you were going to have to research and map out the market’s past all by yourself? Of course not! There are people who get paid to do that sort of work.
They monitor the market hourly, daily, weekly, monthly, and yearly so that they can provide big-time traders with the same knowledge mentioned before.
The more an investment company knows about the market, the more money they can make. The same is true for stockbrokers.
They make money when you make money, and they want to do the best they can to make sure that you make intelligent decisions.
The best part of this is that you have access to the same information as these VIP clients.
Chartists, who are essentially market analysts that publish their findings in easy to read charts, produce what is referred to as a candlestick chart.
These charts are basically a combination of a line graph and a bar graph that show the trend of various stocks, indexes, or other interests over a specified period of time.
Therefore, you can easily determine if the commodity is on an uptrend or if it is taking a downturn, when the last major change occurred, and how long it is predicted that the stock or bond will continue on the current path.