A stock market tutorial on essential stock market tools

In my previous post on stock market basics 101, I mentioned the need to be prepared before you start to invest or trade. I'll like to elaborate on that and provide a stock market tutorial as a more comprehensive overview on the stock market tools you need before you jump into the world of investing.

As any good craftsman will tell you, it is essential to have a set of relevant and effective stock market tools in your toolbox to complete the job. So, what are some of the stock market tools which should be found in any investor's or trader's toolbox?

Before we go more in depth into the stock market tutorial and the tools required, let us recall the big picture of investing as mentioned in my previous articles. What are the elements in the big picture of investing in the stock market?

The first key to investing is following the current stock market trend. 75% of stocks tend to follow the trend of the stock market so it makes no sense to go against the strength of the market. It is extremely difficult and hazardous (to your wallet) to buy shares when the stock market is on a downtrend and vice versa. We need to be constantly be aware of the current strength of the stock market, and therefore need a charting tool which shows the Dow Jones Industrial, S&P 500 and the Nasdaq Composite as well as the volume traded and the average daily volume. Now there are plenty of charting software for sale out there, but I advise all beginners to check out the your online brokers' trading platform. They usually (well, mine does anyway :) ) incorporate this as a free tool for their customers. Do refer to one of my previous posts on how to invest in stocks in the current stock market scenario to check out which online broker I use.  Do remember that one of the key rules to follow as a beginner in the stock market is not to overspend on stuff you can usually get free as you will not be able to generate a high ROI (Return on Investment) as you are just starting out. For more detailed insight into how to monitor the strength of the stock market, do refer to my previous post on the stock market timing guide.

After we have determined the strength of the market, the next step will have a stock market tool that is able to screen stocks which meet your buying rules. Before you do that, you should have a set of buying rules ready so that you minimize your risk and maximize your profits with the right stocks.

Every successful and experienced has his or own buying rules in which he/she will not purchase a stock unless the criteria are all met. If you do not have s set of buy rules, do read up more to see which investing or trading style suits you best. There are a wide variety of strategies out there which is beyond the scope of this blog (there are simply too many and more importantly, I have no desire to influence you to use any investing strategy), but I will touch on a few investing or trading styles which I think are more effective in my future posts. Once you find a style that suits you best, read up more to determine what are the recommended buy rules and experiment from there. If you take the time to learn patiently and try things out, you will learn so much more in a shorter period of time. Beginners in the stock market can try out MSN's stockscreener as a free tool to screen for stocks that are potential buys.

After screening and purchasing your stocks, you can then continue to monitor the stock market and your stocks regularly through charting software and drop in periodically on Google Finance and key in your stock's ticker symbol so as to check out the latest news on your stock holdings. You can also do that if there is a sudden and drastic change in the share price of the stocks that you own to find out the reason why. In this way, you will constantly be in touch with the stock market, your stock and the latest events that are going on. Other alternative sources include MSN's moneycentral and Yahoo! Finance.

Selling stocks successfully (which means that you make a lot of money and have captured most of the uptrend in the process) is a high level skill and it is one of the most difficult components to master in investing or trading. You should have clear sell rules and stick closely to them in any scenario. More importantly, you must be able to overcome the twin emotions of fear and greed and take your profits when it's the right time to do so. If the market is starting to sink and your stock looks likewise, it will be good not to hope for a miracle for the stock market to go back up again and you should exit as soon as possible to protect your hard earned profits. You do not really need any stock market tools here except your knowledge, sell rules and a decent stock charting software (preferably free).

This concludes the stock market tutorial for beginners. With these stock market tools at hand, the stock market beginner should not expect to make money like a pro immediately but should spend some time and a little bit of money that he or she is comfortable to lose and invest in the stock market. As time passes, the stock market beginner should ensure that he or she learns from all the mistakes made in the stock market (this is the most important and valuable stock market tool that separates the experts from the beginners... a wealth of knowledge, experience and skills that money can never buy) and in time, once the investor or trader realizes that he or she is able to make money consistently, more money can be invested or traded and with careful leveraging (money borrowed from your online broker to purchase more stocks), the investor or trader will be able to make a lot of money in the stock market.

Tags: stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, stock market tutorial, stock market tools

How to invest in stocks in the current stock market scenario

The recent turmoil in the stock market has affected every investor who has invest in stocks. The recent ups and downs of the market has made it fairly difficult for mid term to long term investors to invest in stocks, so I'll like to touch on this issue and what to look out for in in order to still be able to make money in this market. The investor pessimism can be seen with the outflow of money from mutual funds out of the stock market into other types of financial instruments such as bonds. Dear beginner investors and traders, all is not lost! There may be a silver lining in the clouds after all.

As discussed in the previous articles, the first thing we have to do before we invest is any stock is to gauge the current stock market situation. Let's take a look at the 3 major stock market indexes, namely the Dow Jones, S&P500 and the Nasdaq Composite. These are the three indexes I use the monitor the strength of the stock markets.

Nasdaq Composite Index Watch

(Image courtesy of OptionsXpress. I invest in stocks with them :))

As you can see, the Nasdaq Composite has been trading within a range for the last six months or so. The resistance level (as seen by the trendline that the index has failed to penetrate from the upside, thus acting as a ceiling) is around 2300 or so while the support level (as seen by the trendline that the index has managed to stay above, thus acting as a floor) is about 2100 or so. I will mention about the circled regions later.

S&P 500 Index Watch

(Image courtesy of OptionsXpress. They provide a free on line trading software for their customers.)

As seen from the graph above, the S&P500 index has also been trading within a range for the last six months or so. The resistance level (as seen by the trendline that the index has failed to penetrate from the upside, thus acting as a ceiling) is around 1120 or so while the support level (as seen by the trendline that the index has managed to stay above, thus acting as a floor) is about 1040 or so. As mentioned previously, I will mention about the circled regions later.

Dow Jones Industrial Average Index Watch

(Image courtesy of OptionsXpress. I invest in stocks with them :))

As seen from the graph above, the Dow Jones Industrial Average index has also been acting in tandem with it's cousins in moving within a tight range. The resistance level (as seen by the trendline that the index has failed to penetrate from the upside, thus acting as a ceiling) is around 10700 or so while the support level (as seen by the trendline that the index has managed to stay above, thus acting as a floor) is about 9900 or so.

What can we conclude from all the analyses of these graphs if we want to invest in stocks?

The first important fact is that the stock market indexes seem to be trading within a range defined earlier. This is vital to know, especially when the stock market indexes are approaching these levels again as they might not be able to break through the resistance/support levels and will bounce off them once more. When this happens, we will notice a change in the trend again. You can prepare for this scenario in advance to protect your holdings or come up with strategies to take advantage of it.

The second important fact is that the stock market indexes are displaying strong volatility near the resistance and support levels (as seen in the badly drawn circles on the graphs). In fact, it is not surprisingly top have percentage changes of 2-3 percent in the days when the stock market indexes are near the support and resistance levels. As such, your portfolio can be greatly enriched or devastated in a matter of two or three days, depending on the type of stocks you happen to own at this time. Hence, it is important to catch the change in the trends quickly if you want to maximize the profits from the short trends that have been dogging the markets in the last six months. If you move too slowly, you will miss out a significant portion of the profits. That said, it is dangerous for beginners to move too quickly to a change in trends as they are often not experienced enough to tell whether it is genuine or not. Even experts make mistakes often in this type of unpredictable periods.

The third important fact is not shown on the graphs. The leading stocks (refer to my previous post on how to pick the best stocks for definition)that I track and buy or sell short have actually fared much better than the rest of the stock market indexes. The drop in price in terms of percentage was not as much and more importantly, the volume was low, thus signifying that the mutual funds and the financial institutions were not selling their shares but are hanging on to them. That is why I have not sold most of my holdings this time even though I usually advocate a must sell when the hit loss is at 7% or so. Within the last couple of days, my portfolio stock picks have recovered all its losses and are even showing some profits. Judging from the stock market index charts and barring any unfortunate events, the indexes should continue to rise until they are near their respective resistance levels. That is when I will monitor extremely carefully to see what comes up next. I do not make any predictions but will simply act based on the current stock market situation.

To summarize on how to do well in this unpredictable period, an investor who wants to invest in stocks must always have a keen sense of the market and how it is behaving, as well as the behavior of superior stocks that he/she has on his/her watchlist. Always have plans in place when the indexes approach their resistance or support levels and react accordingly to what happens next. If this is done well, there is huge money to be made if one decides to invest in stocks.

Tags:stock market, investing, trading, make money, stocks, finance, wealth building, stock market basics, invest stock