Wednesday, May 25, 2022

A Brief Overview of Trading the Stock Market

Stock Market Trading: The stock or share market first appeared in Amsterdam when the Dutch East India Company listed themselves to raise capital. Later on, the Amsterdam stock exchange was created in 1611.

The share market lists the shares of publicly traded companies that the investors can purchase or short for making profits. Previously, stock trading was mainly limited to big investors such as institutions and banks. However, with the developments in vairous financial sectors, we are seeing retail traders make their way in the share industry.

How are the companies listed in the stock market?

The companies willing to sell their shares to the investors must present themselves to the community through the Initial Public Offering. The price of each share will then be determined via the change in the supply and demand and the company’s value. There is massive participation in the buying and selling, which involves investors from big banks to hedge funds and retail traders. This contributes to the increased liquidity that helps get easy fills on the orders.

Stock Exchange and Brokers

A company is listed on a single stock exchange; however, it is also possible to observe a firm present on multiple exchanges. This can help with liquidity issues. The names of the famous share exchanges in the United States are as follows:

  • New York Stock Exchange NYSE
  • American Stock Exchange AMEX
  • National Association of Securities Dealers Automated Quotations NASDAQ

Brokers link themselves to these exchanges and present the trading instruments for traders. They aim to provide the best execution speed and charting tools to help with analysis and, in return, charge a fee through spreads or commissions.

Trading Hours

The US Stock market starts its operations from 9:30 a.m. until 4 p.m. Eastern Time (ET). There is some trading after the market hours, which is mainly limited to the big boys. The amount of volatility and the volume can increase or decrease significantly depending on the time.

Indices

Trading indices show the movement of collective stocks. For example, the S&P 500 tracks the movement of top fortune 500 companies in the United States. US 30, FTSE 100, and Dow Jones are the names of popular indices.

Categories of Stocks

It is possible to classify stocks based on many criteria, for example, their market value, risk, fundamentals, volatility, etc. The best considered by most is their market cap. The companies with a volume of $10 billion or more are deemed large-cap, while those with a value lower than $2 billion are called low-cap stocks.

A Few Trading Strategies

Trading stocks may be considered easy by most, but in reality, it requires years of hard work and dedication. Without proper risk management and a good strategy, losing most of your funds is pretty easy. Indicators are a popular way to determine the correct entry and exit point in the positions. Price action trading is also standard amongst many where traders read the charts and choose the points of support, resistance, supply, demand zones, trend, and candlestick patterns.

Here a trader analyzes Microsoft on the 5-minute timeframe. They observe that on the opening, the stock was really strong with the uptrend. As the market approached the ending, the trend reverses. The entry is then taken when the price touches the previous trend line which now acts as the resistance - Bizna Kenya
Here a trader analyzes Microsoft on the 5-minute timeframe. They observe that on the opening, the stock was really strong with the uptrend. As the market approached the ending, the trend reverses. The entry is then taken when the price touches the previous trend line which now acts as the resistance – Bizna Kenya

It is also important to keep a note of your mindset while trading. Traders engulfed with the feelings of sadness, anger, or happiness usually end up blowing their accounts. The trading leverage should also be maintained within reasonable limits.

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