How to Excel in the Stock Market

Stick to the basic rules of stock trading to succeed in the stock market.

The crucial step for good results in the stock market is to be patient and adhere to the market acutely so that you don’t miss any opportunity to make profitable trades. In this article we are introducing some powerful suggestions for successful trades in the stock market.

Determining a trading strategy- For stock market trading and to convert your trades to revenue, it is crucial that you have got a well considered strategy for investment. It will help you to acquire the correct trading options at the right time. Additionally, if you can comply with your method faithfully, you can surely conquer the losses at the stock market and keep your persistence even when the market is going through terrible times.

Possessing a long or short term trading approach – Having a long or short term perspective of the stock market often helps to plan your trading. Even if you are undertaking day trading, you should look at a longer viewpoint as it will let you prepare your investment according to the trend of the up and down of the stock price. Furthermore, a long term evaluation of the stocks will allow you to have a thorough idea of the cyclic ups and downs of the stock and ultimately you can prepare your investment more successfully.

Creating the right selection of stocks – Selecting the right stocks is without doubt the primary condition for generating a profitable investment in the stock market. The key for successful trading is choosing the stocks that are more than likely to rise in the future or fall if your shorting. The most efficient and tested techniques for assortment of the stocks is fundamental analysis. In fundamental analysis factors like earnings, debt and asset of the company is deemed to figure out how strong the stock is. As an investor or trader you should select the stocks that have history of producing steady profit, low debt and greater assets as these are the stocks that are financially stronger and almost certainly to give good returns in the future. The best way to comprehend the potential of a certain stock is to assess the annual and quarterly reports that are published by all the publicly traded companies.

Executing the trades at the right time – Other than selecting the right stocks, it is also important to figure out the right time to invest in that stock. This is essential as every stock has an optimum price for a given time frame. If that stock has already obtained that level, it would not be a smart choice to invest in that stock at that specific time as that stock is not going to go further up in the near future and you ought to wait for the next chance to invest in that stock. However, if you notice that the stock is yet to achieve its potential price level, you can profit by investing in that company. To discover the right time for investing in a particular stock, it is ideal to technically analyze the stock. The technical analysis is a technique where the price level and volume of trading is considered for determining the best price level of the stock for a particular time.

Producing good use of the stop loss mechanism – When all is said and done, you may never be certain of the stock market fluctuations. Sometimes a potentially great stock can see a reverse trend at any point of time. So while trading in the stock market, you should always be ready to deal with any scenario and the stop loss mechanism is one such way to minimize your loss when the stock is showing reverse trend.

Stock Market Seasonality – Time the Stock Market by Knowing the Seasonal Trend Strategy

Typically we look at charts in chronological orders, one day follows the next, one month follows another, and each year proceeds in sequence. The typical chart chronicles the price path of a stock, or a stock index, over the years and can provide a lot of information for technicians to use. Yet, we can also look at a stock market seasonal chart to gain insight into market information not readily available on standard charts.

To find the stock market seasonality, we will use the S&P 500. So what are the S&P 500 seasonal trends? Or an S&P 500 seasonal chart? For our purposes, stock market seasonality is the tendency of stocks to bottom or top at certain points in the year.

Instead of looking at the last 30 years of price data in chronological order, what if you took each year (January to December) and could put each year on top of each other. All 30 years are then averaged and set to an initial value of 100 to provide one line which shows how the price acts on average between January and December, over the last 30 years (below we take a look at the 5, 10, and 15 years averages as well as the 20 and 30 year averages). Will the average show a stock market seasonal trend where the S&P 500 generally turns higher in certain months, or turns lower in others?

Below we look at the S&P 500 seasonal trends in the futures market. While you may not be a futures trader, seasonality of course affects stocks, the broader market which the S&P 500 futures represent, and the patterns can also be used to trade S&P 500 related ETFs such as the S&P 500 SPDRS (NYSE:SPY).

S&P 500 Seasonal Trends – 5, 10, 15 Year

There is stock market seasonality, and we can see it by looking at stock market seasonal charts. The seasonal tendencies are then extracted from the charts can be used to provide a context for trades which occur within the year. By using a seasonal trend strategy we can isolate high probability times to buy stocks based on stock market seasonality.

When looking at a seasonal chart to find stock market seasonality trends we find the following about the S&P 500 over the 5, 10 and 15 year time frames.

  • Market usually move lower through the first couple months of the year, putting in lows early to mid-March and then head higher in mid-May.
  • The middle to end of May is usually weak followed a short rally into early June which could potentially reach May high levels, but not always (hence the “Sell in May and go away” saying).
  • Beginning of June is also often a short-term peak, followed by a decline into at least early July.
  • Mid-September to early to mid-October is generally weak.
  • Stocks usually bottom out again in mid-November and rally into the end of the year.

S&P 500 Seasonal Trends -20 and 30 Year

By expanding the time frame we can see which of the tendencies listed above also align with the longer-term S&P 500 seasonal patterns over the last 20 and 30 years.

With this much data the trends are much less choppy. We can see clearly the times when stocks generally bottom and top during the year. Here are the tendencies based solely on the 20 and 30 year stock market seasonality chart.

  • Stocks start off the year lower and then bottom in late January. Rally kicks in by (possibly before) mid-March.
  • Top out in late May or early June.
  • Middle of August to end of August is usually a rally time, potentially putting in new highs.
  • Middle of September to middle of October is a bearish time.
  • Middle to late October stocks turn higher and go higher into the end of the year.

High Probability Stock Market Seasonality Patterns

Using all the time frames we can isolate the highest probable turning points. This is an average not a rule. In any one year anything can happen, but that said here are the dominant stock market seasonality patterns which have, on average, occurred on all time frames discussed.

  • Mid-March to mid-May is generally a bullish time.
  • Mid-September to Mid-October is generally a bearish time.
  • Mid-November into the end of the year is a bullish time.

Why Should You Care?

When looking to buy stocks, the seasonal patterns can aid in timing those purchases so stocks are bought during high probability time of overall stock market appreciation. It can also signal potential exits if the trader does not want to hold through a time that is usually bearish. Investors can use this information to buy stocks on dips at certain times of year. Swing traders can also take advantage by making trades in alignment with the stock market seasonality and exiting before probable turning points.

It is important to keep the overall trend of the market in mind. In uptrends use seasonal low points to buy stocks. In overall downtrends, use seasonal high points to get short or to sell.

How Much Does It Cost To Invest In The Stock Market?

The answer to “how much does it cost to invest in the stock market?” depends on a number of factors including but not limited to the kind of investor you are, the type of stock you buy and the company you choose to invest in. The stock market is risky business because the probability of you losing money is high. That is the reason why you need to understand the fundamentals of the business before you invest. Before you can determine the cost of investing in the stock market, you will have to understand how it works.

What Is the Stock Market?

Stock market is the buying and selling of stock (shares) of a company. The shares are securities that are listed on the stock exchange. Once you buy the stocks of a company you automatically become a shareholder in the company. You will earn from the stock you bought in two ways; first through the dividends that are paid by the company to the shareholders. The second way you earn money is through the appreciation of the company. Depending on the type of stocks you bought, the dividends are usually calculated on a fixed rate or variable rate.

The Different Types Of Stocks Can Affect How Much It Costs

When it comes to calculating how much it costs to invest in the stock market, you will have to determine the type of stocks you are buying. There are different types of stocks and they all have different market value.

Common Stocks; These are securities that represent ownership of a company. Once you buy these stocks you will have a right to vote at any shareholder meeting. The common stock shareholders however, are usually at the bottom of the priority ladder. This means if the corporation goes bankrupt, the common shareholders will only receive their money after the creditors and the preferred shareholders. In terms of cost these stocks have a less yield.
Preferred Stocks; These stocks give you a little ownership of the company but you don’t get any voting rights. The preferred stock shareholders usually receive dividends that are calculated on a fixed rate. The preferred stocks have a higher yield per stock as compared to the common stocks.
Penny Stocks; these are usually referred to as common stocks of the small public companies. The penny stocks are usually priced at $5 and below.
Factors That Affect Stock Prices

The price of a stock influences how much it will cost to invest in the stock market. It is thus important to understand the factors that affect the stock prices.

Company Performance

This is the major factor that influences the stock prices. The company performance, refers to the company earnings, both current and future earnings. The performance of the company may be affected by factors like employees’ layoff, change in company management, a new service or product, scandals and many more. These internal factors directly influence the price of a stock.

Inflation And Deflation

Both of these factors directly affect the stock market. Inflation is where the prices of goods and services rapidly go up. This causes the cost of manufacturing and transporting of goods to go up. In an event of inflation, the stock market drops due to the decrease in revenue. Deflation on the other hand is usually the drop in the prices of goods and services. While deflation is supposed to be a good relief, most investors don’t invest in the stock market. This is because they believe that the economy is weak. This causes the stock market to drop.

Interest Rates And Foreign Markets

The interest rates that are imposed on a company while borrowing money from the financial institutions usually affect the prices of the stocks. Higher interest rates usually affect the company borrowing which will in turn reduce their profits and dividends. Foreign markets on the other hand affect the stock prices indirectly. When the economic status of the countries goes down, it affects the stock market negatively. Once the economic status changes, it influences how the foreign countries will trade with the said countries. This will in turn affect the stock market of the foreign countries.

Tips Of Determining the Cost Of Investing In the Stock Market

Time to invest; when it comes to the cost of investing in stock market, it is not only money that matters. The time you invest in financial market is also important. You need to determine the amount of time that you are willing to invest in the stock market.

The number of shares you are willing to buy; the number of shares that you are going to buy will determine the total amount of money you will use. If you are new to the business is advisable you buy a few stocks as you learn about the business. Also remember not to buy all your stocks from one company, diversification is very important.