Stock Market Musts: The Bare Essentials You Should Know Before Your First Trade


business-861323_640Taking your first steps as a stock market investor can be a bit intimidating and any level of uncertainty that you have in terms of how to trade and the fundamentals to be aware of, can be costly.

Sites like aim to turn you into a successful investor and whatever you decide to do, the one aspect that you can’t afford to skip, is learning the bare essentials of what it takes to trade the financial markets and give your self a decent chance of generating a profit.

Going into battle

No one likes losing money whatever the scenario, so it is sound advice to understand what you can expect from trading markets, so that you at least give yourself a fighting chance of not making some expensive mistakes.

It is a good idea to remember that the stock market operates as an adversarial system of trading.

What this means is that you are constantly involved in financial sparring with other investors who may well have opposite views to you about a certain stock or financial scenario. The basic math of what goes on every day, is that for every investor who decides to sell a stock, there is someone out there who has to be willing to buy it, for the trade to take place.

Always appreciate that you are going into battle, and in a battle situation there is only going to be one winner most of the time.

If you have made a profit on your trade, it stands to reason that someone else will have made a loss, so be prepared to become part of an adversarial system that doesn’t have much time for sentiment and doesn’t make allowances for novice investors.

Understanding why prices fluctuate

It is important to understand some of the principal drivers that help to push prices higher or lower.

There are far too many factors to list them all, but some of the reasons why a price of a stock might be affected include, a poor set of financial results, poor economic or political conditions, an unforeseen natural disaster or event, or simply the news that a high-profile investor has bought or sold some the stock of a particular company.

These scenarios create an air of either positive or negative sentiment depending on the nature of the information that is being provided and this will produce either a greater amount of sellers or buyers.

If there are more buyers than sellers for instance, this will normally cause the stock price to rise.

Logic and emotion

The best investors are often able to detach themselves emotionally from an investment opportunity.

It is very easy to get carried away by your emotions and put logic to one side, but that is not something you want to do most of the time, when it comes to investing.

Consider the idea of buying car as an example. Your heart might choose a certain model that offers more excitement, but your head normally knows which model you should really be buying.

The same logic applies to investing and it often pays to look at the facts about an investment opportunity rather than using your emotions to guide you.

Alexander Stone started off as an investment banker who has built up a vast knowledge over the years. He is now a stocks consultant. He enjoys blogging about stocks and shares, especially writing articles that newbies can learn from.

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