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Entries in Financial (1)

Tuesday
Mar082011

The Power of Stocks - Makes one man weep and another man sing

 
So, you are a single income homeschooling family that wants to make money selling stocks Huh! Well, you could follow the wisdom of the ages which says to "Buy low and sell high" but after you purchase your first stock at what you think was the market low and you watch the stock go lower you start to wonder.  Or even when you sell the stock at what you thought was the high, just to watch the stock soar even higher you quickly realize that you have no idea what low or high really is.  Well this is where I found myself when I first got into the stock market several years ago.  I basically jumped into an ocean and started swimming not knowing which direction I was headed.  But with some diligent work and lots of study I was able to see a steady rise in my investments. 

If you are wondering how to get into the stock market and what pitfalls to avoid I will attempt to cut down your stock tuition by a few thousand dollars.  The stock market to many people seems like this huge black box that if they put money in then money will come pouring out.  Well, that is the allure of the markets, however, this is the reason why the majority of people who invest in the stock market tends to lose, because they follow the black box way of thinking instead of coming up with a proper game plan.
 
So let me walk you through everything you will need to be properly equipped to navigate the online stock market.

Requirements for Trading Online:

1. A Computer:
You can get either a desktop or laptop whatever you prefer.

2. An Internet Connection:
You can either get a wired Internet connection like DSL, FIOS or Cable.  If you get a laptop then you can choose from the many wireless cards that are available on the market.  The wireless card route will allow you to trade from anywhere and at anytime the market is open.
 
3. An online Broker:
You can choose from many different brokers.  Some of the popular ones are;  www.tradestation.com, www.esignal.com, www.tdameritrade.com, www.scottrade.com, www.sharebuilder.com
 
4. Money:
In order for you to purchase stocks you need money.  Sorry folks there is no way around this one.  If you don't have much money you can start the way I started and that's by using Sharebuilder.  Sharebuilder had no huge starting monetary requirements like some of the other institutions do. You just deposit how much you can when you can and build up your investment egg.
 
5. Books and a willingness to learn:
A willingness to learn will help you to overcome many minor hiccups.  Basically, there are quite a few things that the beginning stock trader/ investor just does not know and will need to learn.  Such as the differences between limit and market orders.

Terminology: 
Lets get some of the terminology out of the way before we proceed.  First you will notice that I use the term "Trader" very loosely.  According to the definitions of a Trader that is generally accepted in most market circles, this is someone who will make a quick turn around on their stocks.  Usually if a trader purchases their stocks they will rarely hold it for weeks much less months.  They will try to sell at a profit as fast as possible.  An investor on the other hand can hold their stocks for months and even years.
  
So the duration that one holds their stocks is the determining factor between a Trader and an Investor. Throughout this article I will refer to both Trader's and Investors as Trader's unless I am specifically trying to make a distinction between the two.  As a result when you hear Trader just assume Investor as well.  Basically, in my mind the investor will also need to sell his stocks at some-point and this means that they will need to trade their stock for someone else's cash, you cannot sell if their is no buyer.
 
Philosophical Interjection 
 
This actually brings up and interesting point of whether a christian should invest in the stock market since the belief is usually - the only way for you to win in the stock market is by someone else losing.  In any case this is not a paper on convincing you to go into the stock market.  Please use the freedom of will the Lord has given you in conjunction with your bible and come to a decision on what it is you would like to do.  If you need other resources to draw from please visit http://www.crown.org/ - http://www.gotquestions.org/Christian-stock-market.html or http://www.48days.com/ to formulate your own ideas. 
 
Interjection Concluded 
 
Now lets look at Fundamental Analysis vs. Technical Analysis.  You will hear these two terms discussed quite often and you may lean to one side of the camp or the other.  Fundamental Analysis involves examining the companies financial statements and its current health, in addition to the management, the competitors, the financial projections and a myriad of other things that are fundamental to a company.
 
Technical Analysis is concerned with looking at the trends and price patterns of the market and that this information can be exploited.  You will hear things like "The Trend is you friend" and "sentiment changes predate and predict trend changes."  Blah, Blah, Blah...  That is what it sounded like to me when I first read up on this information but the faster you can grasp it the better it will boost your success.  My viewpoint is that you can make money using both of these viewpoints however, you will choose the one that is right for you in the beginning.
 
Next lets look at the Stop Loss order.  This is basically an order placed with the broker to sell a security when it reaches a certain price.  The stop loss order is designed to limit your loss on a security position.
 
Finally lets look at limit orders vs. market orders.  A limit order is an order to a broker to buy a specified quantity of a security at or below a specified price, or to sell it at or above a specified price.  Simply put a limit order is nothing more than an order to buy or sell a stock with a price limit attached to it.  The market order is a buy or sell order in which the broker is to execute the order at the price currently available.  Usually on some definitions of market orders the definition will include buying or selling at the best price currently available but there is no best price when selling or buying at market.
 
Think of it this way, you give your son $20 to purchase milk at the store, all you tell your son to do is go to the store and purchase some milk.  When your son returns he gives you the milk and when you ask for the change he tells you that there was no change because the milk cost exactly $20.  That example would be a market order.  However, if you tell your son to purchase some milk from the store and you say if the milk is over $10 then do not purchase  it.  You are sending your son to the store with specific instructions on how to execute the purchase of the milk.  This would be the equivalent of a limit order.
So your first lesson for handling your stocks is to never buy or sell at market unless you are trying to get out of the stock quickly.These are the key terms for beginners entering the stock market.
 
Psychology:  
 
Weeping or Singing? Simply put the stock market moves because of human emotion and you must master your emotions if you will be a successful trader.  Emotional attachment is a very dangerous thing in this business.  You will find it very difficult to cut your losses if you are trading money you cannot afford to lose.  Your memories, associations, beliefs, and perceptions will serve to confuse you at the worst time.  Consequently, you will need to know yourself inside and out.  Reading the recommended books will definitely give you a leg up in understanding your emotions and how to control them.  Those who master their emotions will sing while those who give into their emotions will weep.  
 
Recommended Reading 
 
Here is some recommending reading.  I have put them in the order in which you should read them. Study up and then start trading.
 
1-The Disciplined Trader: Mark Douglas (Read this book First - Don't purchase any other book until you have finished this book.)
 
So that's it. These are the beginning requirements for a new trader getting started in the stock market. Take your new found knowledge and create an inheritance for your children's children.