Most people on TV have an agenda to some degree. For example, if someone on TV says a stock is going to tank, they may be looking for their audience to sell the stock so they can purchase it at a lower price. They need a large group of people to change their persuasion in order to have the stock decline. They are looking to move the market.
The same happens in reverse. If somebody on TV wants the stock to go up so that they can sell it, they might try to build up a stock and talk about how great it is with the intent of selling it once it does go up.
That is the nature of the stock market. People don't always reveal what they're looking to do in the future. It is wise to stay away from the TV channels that discuss stocks, unless you are able to view it neutrally.
It is more effective to read the company's earnings reports and website in order to learn what actually is going on within the company, rather than focusing on one person's opinion of what is happening with the company.
People are willing to manipulate others in order to make the stock go up or down. It is important to be aware of that fact and to trade according to your research and rules rather than what others say.
Something that is played on the news headline based on the initial news coverage.
Example: If Google releases completely new algorithms that other search engines can use, it will benefit other search engines such as Yahoo and BIDU, while hurting other companies like newspapers and print companies.
The sympathy play is to buy the Yahoo or the BIDU. The reverse manner would be to short sell the newspaper or print companies.
The reason you do this is because typically Google's news would get released first. If you miss the move, you can play the other search engines. Those take a longer time to catch up to the original news.
The same can happen with the oil and gas industry. If oil companies benefit from news, their stock will go up in price. You can play the opposite of that and focus on solar and energy companies, which might be going down in value.
Sympathy plays are important to look out for because they have already digested the original news.
They are made to keep you disciplined and away from trouble.
You should come up with your own rules and set of expectations for when you trade.
Rules apply more toward internal psychology than stock trading in general.
Examples of Trading Rules
Do not force a trade: Many times traders and stock brokers become bored and try to make trades even if there aren't trades available If you don't see an opportunity, do not trade. Spend the day doing something else.
Take profits: Whether you are trading daily, monthly, swing trading, etc do not forget to take profits. The stock market goes in cycles so you need to make sure you're taking profits because eventually the stock will start retracting.
Be patient: If a stock is going up, let it run its course. If a stock is going down, be patient and wait until it hits the bottom. Even if the stock is retracting slightly, be patient.
Always honor stops: For example, if you bought a stock for $50 and you have a $1 stop, and the stock dips down to $48, you should get rid of the stock and take a small loss rather than waiting for it to continue to descend. The same goes for making profits.
Never trade earnings plays: Even if the earnings are great, the stock might tank. It's all a matter of the buyer/seller's perception. You have to keep in mind the perception of the news, rather than the news itself.
Always set monthly/yearly goals, not daily: Don't focus on daily fluctuations. This is why it is important to be patient. If the average of your trades are positive then you don't need to worry.
No trading once the day loss exceeds more than $X: This mostly applies to day trading. Decide on a figure that you're comfortable with, and do not continue to trade once your day loss exceeds that number. You don't want to keep killing your account.
Get in before headlines: Get in before the headlines rather than trying to play the headlines. That way you get the full potential either on the upside or the downside.
No tips, do your own homework: Don't give out tips and don't listen to them. If people are looking for feedback then do so in a neutral way. Do not be influenced by tips; this goes along with watching TV.
Shrug off losses if the rules are followed: There is always another day and there is always another trade. The market will still be there. Don't let your losses stress you out if you followed the rules because it will affect you in the future. You want to be able to trade confidently and effectively the next time.
You don't need to follow all of these rules all of the time, but they're a good starting point.
There are a few different levels of account balances when it comes to trading. It can be helpful to have three separate accounts: one for an IRA, one for trading/day trading, and another for swing positions. How you manage your accounts is up to you, but there are a few guidelines.
These guidelines may change based on the price of the stock you are trading. Accounts will be different between a $500 stock compared to a $20 stock. At $500,000+ you will buy more shares of a company trading at $1 per share and you might be able to move that stock heavily. If you purchase the same $1 stock with the $0 to $1,000 account, you will not move the stock.
$0 to $1,000
You may only have one account when you have a smaller amount of money available for trading.
You may have trouble finding brokers.
There is a law that states accounts less than $25,000 can't day trade and can't trade more than three trades every five days.
$5,000 to $20,000
This amount is what most people start with.
$5,000 is close to the minimal requirement for most brokers.
You will not be able to buy a lot of expensive stocks. You need to give them more room to play.
$25,000 to $150,000
If you buy a lot of one stock you could be down a considerable mount of money in one to two days.
You need to know how to manage your risks and trades, and you need to build up your experience before trading.
At this point you will start to move stocks slightly, especially if you are putting in $300,000 to $400,000 to one stock.
Once your account gets to $3 million to $5 million you may want to buy $300,000 of one stock. If you have 4 or 5 stocks it won't dampen your account value too much. That is when you start moving the market. You want to be careful and watch how you trade. You want to really know what you are doing when you get to this level. You may want to be gradual rather than buying everything at once. For example, you may want to wait for a basing pattern and buy in increments.
The important thing to understand about higher account values is that you start to move the market. With lower account values you need to manage your risk more. You will also pay more on commissions with lower account values.
Make sure that when you are first start to trade that you trade three to five shares as a test run. It gives you the emotional experience behind trading. You will probably lose out on most of them because of commissions but it will be more educational than paper trading.
They expire the third Friday of the month you purchase them for
Strike price = expiration price
You pay a premium
The option gets traded and sold versus the stock
Most people just trade the contracts
Think of options like buying a house
You find a house that you like in an area where the houses are selling for $150k. You knock on the door and ask to buy the house. You are willing to give $10k up front if the house is sold to you within 6 months for $200k.
It is a win-win situation.
The homeowner gets the $10k and you get the option to purchase the house in the future and you can do research to check if the area is actually developing.
You have the right, but not the obligation to purchase the house. You pay $10k in order to have the option to buy it.
If someone gave the homeowner a higher bid, the homeowner would not be able to sell the house because you have the legal right to buy it in the future for $200k.
The homeowner would have to buy out the contract with you before selling the house for $300k.
I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More
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