Ways of Researching and Choosing Stock

Yahoo finance stocks: Trading stocks online seems complicated and confusing when you’re just getting started, but with research and careful strategizing, it can become simple and even enjoyable. With the right plan, online trading can help you earn money from the comfort of your own home.

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Perform a technical analysis. Technical analysis is an attempt to understand market psychology or, in other words, what investors as a whole feel about a company as reflected in the stock price. Technical analysts are normally short-term holders, concerned about the timing of their buys and sells. If you can detect a pattern, you might be able to predict when stock prices will fall and drop. This can inform you about when to purchase or sell certain stocks.

• Technical analysis makes use of moving averages to track security prices. Moving averages measure the average price of the security over a set of period of time. This helps traders more easily identify trends.
  

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Identify patterns. Patterns identified in a technical analysis include identifiable price boundaries in the market price of a stock. The high boundary, which the stock rarely surpasses, is known as the “resistance.” The low boundary, which the stock rarely dips below, is called “support.” Identifying these levels can let a trader know when to buy (at resistance) and when to sell (at support).

• Some specific patterns are also detectable in stock charts. The most common one is known as “head and shoulders.” This is a peak price then drop, followed by a taller peak then drop, and finally followed by a peak similar in height to the first. This pattern signals that an upwards price trend will end.
• There are also inverse head and shoulders patterns, which signify the end to a downward price trend.
  

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Understand the difference between a trader and an investor. An investor seeks to find a company with a competitive advantage in the market place that will provide sales and earning growth over a long period. A trader seeks to find companies with an identifiable price trend that can be exploited in the short-term. Traders typically use technical analysis to identify these price trends. In contrast, investors typically use another type of analysis, fundamental analysis, because of its focus on the long term.

Learn about different orders traders make. Orders are what traders use to specify the trades that they would like their brokers to make for them. There are numerous different types of orders that a trader can make. For example, the simplest type of order is a market order, which purchases or sells a set number of shares of a security at the prevailing market price. In contrast, a limit order buys or sells a security when its price reaches a certain point.

• For example, placing a buy limit order on a security would instruct the broker to only purchase the security if the price fell to a certain level. This allows a trader to specify the maximum amount he or she would be willing to pay for the security.
• In this way, a limit order guarantees the price the trader will pay or be paid, but not that the trade will occur.
• Similarly, a stop order instructs the broker to buy or sell a security if the price rises above or falls below a certain point. However, the price that the stop order will be filled at is not guaranteed (it is the current market price).
• There is also a combination of stop and limit orders called a stop-limit order. When the price of the security passes a certain threshold, this order specifies that the order become a limit order rather than a market order (as it does in a regular stop order).
  

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Understand short selling. Short selling is when a trader sells shares of security that they do not yet own or have borrowed. Short selling is typically done with the hope that the market price of the security will fall, which would result in the trader having the ability to purchase the security shares for a lower price than they sold them for in the short sale. Short selling can be used to make a profit or hedge against risk, however it is very risky. Short selling should only be done by experienced traders who understand the market thoroughly.

• For example, imagine that you believe that a stock currently trading at $100 per share is going to decrease in value in the coming weeks. You borrow 10 shares and sell them at the current market price. You are now “short,” as you have sold shares that you didn’t own and will eventually have to return them to the lender.
• In a few weeks, the price of the stock has indeed fallen to $90 per share. You purchase your 10 shares back at $90 and return them to the lender. This means that you sold shares, that you didn’t have, for $1,000 total and have now replaced them for $900, netting yourself a $100 profit.
• However, if the price rises, you are still responsible for returning the shares to the lender. This potentially unlimited risk exposure is what makes short selling so risky.
  

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Interview online brokers. Don’t rely on a tip from a friend or neighbour. The right brokerage service can make the difference between financial success and failure. Before choosing an online brokerage, ask about details like pricing and the available investment choices. Find out about the customer service they provide and whether or not they offer resources for education and research. Finally, find out about their security practices.

Decide which brokerage tools are important to you. Depending on the amount of experience you have, you may require different levels of service from an online brokerage service. Some services offer personal advice, which may be beneficial to beginners. You may pay higher fees for these services, but if you’re just starting out, you may think the fees are worth it. Online brokers that offer tools and advice to help beginner traders include E-Trade, ShareBuilder, Fidelity, Scottrade and TDAmeritrade.

• ShareBuilder also offers an ATM card that gives you access to uninvested funds.
  

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Work with a discount service if you have more experience. If you can do all of the research yourself and don’t need personal advice from a broker, then consider working with a discount online brokerage. You can start with a smaller sum of money. Also, you have access to more investment choices. In addition to stocks, other investment choices may include options, mutual funds, exchange-traded funds, fixed income funds, bonds, certificates of deposit and retirement accounts.

Educate yourself about financial performance indicators. Read the news and financial websites. Listen to podcasts or watch online investment courses. Join a local investment club to learn from more experienced investors.

Practice with an online stock simulator. An online stock simulator is a fantasy market game that simulates online trading. Using these allows you to practice your skills with zero risk. Many come with tutorials and forums to discuss investing strategies.

• However, keep in mind that simulators don’t reflect the real emotions of trading and consequently are best used to test theoretical trading systems. Real profits are much more difficult to achieve than imaginary profits.
• Online stock simulators to try are Investopedia, MarketWatch and Wall Street Survivor.
  

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Trade penny stocks. Many companies offer stocks that are traded for a very low cost. This gives you an opportunity to practice leveraging the market without much risk. Penny stocks are usually traded outside the major stock exchanges. They are generally traded on the over-the-counter-bulletin-board (OTCBB) or through daily publications called pink sheets.

• Many legitimate brokers will not accept penny stock orders due to the frauds and scams inherent to this market.
• Be warned, however, that penny stocks can be risky investments. The Securities and Exchange Commission (SEC) says that it is complicated to accurately price them, and it can also be difficult to sell them once you own them (they are illiquid). These thinly-traded stocks are also susceptible to large bid-ask spreads (differences between buying and selling prices of the security), making it difficult to make money trading them.
• Also, dishonest brokers prey upon inexperienced investors by making false promises about how companies are expected to perform and using celebrity spokespeople to market bad investments.
  

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