One of the most interesting things in the stock market, is watching people trade stocks and engage in crowd behavior. This has been very evident in the recent market decline. When the market was going down, the crowd was selling into at any price, causing the stock market crash. In the media, at the same time, all the voices were discussing selling, selling, selling in a uniform chorus. As you can see from the market action, the herd suddenly stampeded, almost without warning into a 13% market decline in only five weeks until the end was reached and even then extreme volatility prevailed. What should your stock trading strategy be?
My experience as an OTC market maker gives me a unique perspective on these types of stock market trading and stock market crashes. Imagine being a professional stock trader, a market maker. You have a certain amount of capital. If you do are loaded up with inventory and do not anticipate a stock market crash like the one we just had, you are doomed. If you have, say, $1 million in inventory, to pick a round number, and you are 80% long, in a 15% market decline, you lose on average $120,000 in a matter of weeks. If you had to repay your losses, you were not a happy stock trading professional.
Many individuals and entities trade in the stock market. Small investors, day traders who square up their transactions on the same day, investment/financial companies, banks, hedge funds, individuals with a high net worth, institutions, mutual funds - all are involved in stock market trading. These individuals and entities place their buy or sell orders through a market intermediary, called the stockbroker. Majority of the transactions are routed through a network of computers that execute orders in a matter of seconds.
You do not want to get in front of the moving train and buy on the way down. You do not want to be the pioneer when the stock market crash seems to halt, only to find out that the market has more to move down. The way to do that is simply to anticipate. You have to be short before the decline, long before the rise. The only way you can execute your stock trading strategy is to be able to brush aside all the crowd mentality, all the herd instinct. If you see everyone bullish, you have to be bearish and looking to lighten up and go short. If you see everyone selling in a stock market crash, you have to start to look for the buy point. It is that ability to maintain a clear head and observe others instead of getting carried away by them or with them that leads to profit.
The stock market index is a value, determined by the stock exchange authorities, that reflects the market's movement. This value is based on a handful of high-volume and reputed stocks - these are weighed and a number is given to them. This number or value fluctuates according to the movement in the prices of these stocks and this is what indices such as the Dow Jones, the NASDAQ, the S & P (Standard & Poor) are all about.
A particular pattern that is often seen in stock market analysis is known as the Cup and Handle. This is when a stock starts off with a high price and then dips in cost and eventually returns to a higher price. When that stock levels out in costs, it is called the handle of the stock, and this can be a good place to buy so the trader makes good profits when it goes back up, which is the cup part of the pattern.
My experience as an OTC market maker gives me a unique perspective on these types of stock market trading and stock market crashes. Imagine being a professional stock trader, a market maker. You have a certain amount of capital. If you do are loaded up with inventory and do not anticipate a stock market crash like the one we just had, you are doomed. If you have, say, $1 million in inventory, to pick a round number, and you are 80% long, in a 15% market decline, you lose on average $120,000 in a matter of weeks. If you had to repay your losses, you were not a happy stock trading professional.
Many individuals and entities trade in the stock market. Small investors, day traders who square up their transactions on the same day, investment/financial companies, banks, hedge funds, individuals with a high net worth, institutions, mutual funds - all are involved in stock market trading. These individuals and entities place their buy or sell orders through a market intermediary, called the stockbroker. Majority of the transactions are routed through a network of computers that execute orders in a matter of seconds.
You do not want to get in front of the moving train and buy on the way down. You do not want to be the pioneer when the stock market crash seems to halt, only to find out that the market has more to move down. The way to do that is simply to anticipate. You have to be short before the decline, long before the rise. The only way you can execute your stock trading strategy is to be able to brush aside all the crowd mentality, all the herd instinct. If you see everyone bullish, you have to be bearish and looking to lighten up and go short. If you see everyone selling in a stock market crash, you have to start to look for the buy point. It is that ability to maintain a clear head and observe others instead of getting carried away by them or with them that leads to profit.
The stock market index is a value, determined by the stock exchange authorities, that reflects the market's movement. This value is based on a handful of high-volume and reputed stocks - these are weighed and a number is given to them. This number or value fluctuates according to the movement in the prices of these stocks and this is what indices such as the Dow Jones, the NASDAQ, the S & P (Standard & Poor) are all about.
A particular pattern that is often seen in stock market analysis is known as the Cup and Handle. This is when a stock starts off with a high price and then dips in cost and eventually returns to a higher price. When that stock levels out in costs, it is called the handle of the stock, and this can be a good place to buy so the trader makes good profits when it goes back up, which is the cup part of the pattern.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: Do Not Gamble Your Cash Away On The Foreign Currency Market You have full permission to reprint this article provided this box is kept unchanged.
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