Why Does the Stock Market Price Rise and Fall?

The question about what moves the tock market is quite complicated. There are several visible and invisible factors that cause the rise and fall in stock market. There are several issues on political, economic and social level that include inflation, change in interest rates, earnings of the people, oil and energy prices, war, peace and terrorism, political and domestic situation and so on. While some of these factors may have long-term consequences for the stock market, others may have only short-term implications.

What, however, drives the market crazy is the uncertainty factor. What the stock market is most sensitive to is the surprises. When something unusual occurs in the country, the stock market immediately reacts to it. Stock market radars are extremely sensitive to changes.

This can be illustrated by an example. If the Federal Reserve Board's Open Market Committee-Fed- thinks of raising the interest rates by one quarter percent, the stock market will not react much. If contrary to the expectation, the Fed raises the interest rate by one-half percent, the market will feel shocked.

So any news which can surprise the market can rattle it, be it on the economic front, terrorist attack and similar other incident. If the news is really good, it also shows its impact in form of rise in stock prices.

The cumulative effect of these factors, whether good or bad, creates market phases such as bulls phase, bears' phase or secular phase.

A bull market is also referred to as a bull run. A bull market is characterized by a rise in stock prices. It keeps most investors happy. It creates and strengthens their confidence and makes them optimistic about the returns on their investments. Therefore they tend to invest in stocks in the hope of making big in the near future.

A notable example of bull market was in the 1990s when the US and several international markets had a very happy time because the financial markets went up very rapidly. The US stock markets had a bull run from 1983 to 2007 except for brief periods of slumps.

Bear market is associated with fall in prices and lots of pessimism. Investors fear losses. A negative sentiment prevails in the market and investors want to sell their stocks fearing further downfall.

The most glaring example of bear phase in the history of United States was after the Wall Street Crash of 1929 that continued from 1930 to 1932 generating what was called the Great Depression. A milder version of bear market occurred from about 1973 to 1982 when the economy became stagnant. It resulted in energy crisis and high unemployment in the early 1980s.

A bear market is often characterized by the constant price fluctuations. A bear market does not mean just a simple fall in stock prices. It may result in substantial price fall. Although you cannot give a clear definition of bear market, it is often characterized by a fall in price by around 20% in a period of two months. A recent example of bear market is current state stock markets of world in the year 2008.

A bear market should not be confused with a period of correction. Correction also results in fall in stock markets, but a period of correction is usually short lived. Moreover correction usually occurs during the bull phase. The price fall does not surpass 15-20%. The bear markets last longer and suffer much greater price falls from top to bottom.

A period of correction in stock prices is usually a welcome opportunity for smart stock market investors. They try to buy high value stocks when most people try to sell them away at reduced prices. The profit from their sales as soon as the correction period, which is usually short lived, is over.

When the stock market price shows downward trend, the analysts begin to debate whether it is actually a correction, a rally, or the start of a bear market or even a bull market. In any case it is usually impossible to arrive at any correct decision. In fact, whether the market is actually passing through a correction or a truly bear phase can be determined only after that phase is over.

It must, however, be noted that a bear market howsoever depressing it may be, rarely wipes out the real (inflation adjusted) gains made during the previous bull market. On the other hand the bulls that succeed the bears often make up for the real losses of any bear market.

Secrets Of Online Trading And Stock Market Hours

Most people would liken stock trading with gambling. However, in truth, the two couldn't be more different. In fact, it isn't simply buying and shares as well. Developing a good trading strategy is the key to making it in the stock market. A stock market simulator, is an online game application that duplicates aspects of real-life stock markets, from trading strategies and information, down to the varying stock market hours of the different stock exchanges. Read on and know more about how you can learn and practice trading with an online stock game simulator.

Two types of online stock game applications are available online for you to practice your trading skills and strategies. Naturally, no real money is involved; play money is used, so you can practice it without the financial risk. The two types of simulators are: Financial and fantasy stock game simulators.

If you want to practice trading through a fictional portfolio based on real entries, scenarios and stock market hours, then the financial stock market simulator is the best one for you. Because this type of simulator downloads and processes real and actual numbers and information, most online trading websites that offer these free stock games use a delayed data feed, that sends the information well after the end of the stock market hours. This prevents any abuse of the simulator and the system by unscrupulous traders who want an edge before the start of the stock market hours of the next day.

Most online simulator systems ensure that the stock market information and data may not be used to do actual trading before, during and after stock market hours using their information. Safe, reliable and enjoyable, a financial stock market online simulator is a great way for you to practice actual stock trading scenarios and gain experience and a working strategy before you move up to the real thing.

Another type of simulator is the fantasy simulator. This type lets you practice stock trading through thoroughly hypothetical yet amusing settings. While it retains many essential features of the stock market like premium picks and options, trading tickers, regular market hours, other traders, among others. But unlike the financial simulator application, fantasy simulators feature imaginary stocks that, while representing real items, would never be actually traded in a real stock market trading setting.

Traded items in fantasy stock market simulators would include questions on how long books will last on selected bestseller lists, the box-office success of specific movies, antics of infamous celebrities, rankings and statistics of sports teams and events, and more. The value of a fantasy market simulator is in its application of principles and how these may work given a real setting.

The simulator uses the analogy to teach anyone with no background in trading understand how it works. Fantasy stock market simulators use these items because they are familiar to a lot of people, thus opening opportunities for learning online stock trading to more and more people. This is one way where you get to practice stock trading techniques and strategies while having fun.

Getting the hang of how shares are bought and sold, and how other variables like stock market hours affect your investments are all part of your learning experience. Learning the ropes with a stock market simulator is one of the best ways to get you started with trading stocks.

he Art of Making Money in Stock Market

Most people know that the stock market is unpredictable. Losses in stock market investment are an inevitable part of the trading process. Therefore every stock market trader, howsoever shrewd and experienced he may be, is bound to incur a loss at one time or another.

So before you start trading in the stock market, you must be prepared to suffer losses like every other trader. This, however, does not mean that making money in stock market is more a matter of luck or chance.

This only means that you should make a thorough search, both fundamental and analytical, about the profitability of the stock before investing in it. Having done that you must be prepared to suffer loss since, as already said, the stock market always remains unpredictable.

You have to develop a mind set which should be prepared to take losses in your stride.

What is the use of developing this kind of mind set?

If you understand that losses are part of the stock trading, you will look at your losses with detachment and equanimity like a good sportsman. You will not be shocked and perturbed. You will not lose your perspective and you will be able to prepare yourself for the next game, next trade with a cool mind.

A disturbed mind cannot react properly. It is likely to misinterpret the graphs and charts of the market trends and draw wrong conclusions.

A constantly nagging fear of suffering another loss in the next trade may prevent a trader from investing which would mean that the loss incurred in the previous trade would not be recouped.

If you have a positive mind set and understand that you have to make money in an inherently mercurial market, you try to be realistic instead of perfectionist in stock trading.

A good trading day for a realistic and positive trader will not be one when he makes money. It would be the one when he has made both an extensive and intensive research in the stock he wants to trade in. He has made a thorough planning with discipline and focus and follows each step as per his planned strategy. Making money in stock market for such investors will become easy.

Experts in trading psychology believe that it is important to concentrate upon things which you can easily control. You should not try to lose your focus on attending things which you cannot control.

For example, while you cannot control the price trend, you can control your losses by using the stop loss tool effectively. You can understand the concept of support and resistance levels and use them successfully in your trading.

According to Tim Renolds, you should develop three basic strategies to stop your losses. These are price based, time based and indicator based strategies.

In order to use the price based stop loss strategy, you will have "to make a hypothesis about the trade and identify a low point in that particular stock market." Having done that, you should "set your trade entries near your points, thus making sure that losses will not be overly excessive if the hypothesis fails."

The time based stops involves making optimum use of your time. You should fix up a certain holding period to achieve your target in trading a particular stock. If you cannot achieve your target within that time frame, you should not keep that stock and sell it off.

The indicator based strategy involves understanding market indicators. As an intelligent trader you should become aware of the market indicators and utilize your experience to analyze them to your benefit. The market indicators include volume, advances, declines, new highs and lows and so on.

Experts in stock trading psychology recommend that you should set stops and "rehearse them mentally". It will help to ensure that you follow these strategies thoroughly and benefit from them.

Another important point is that you should immune yourself from the influence of mass psychology. It means that you should resist the temptation to do what the majority of stock traders are doing. You must make up your own mind whether or not you have to buy or sell a stock. You can make up your own mind only when you have done your own independent research and do not listen to the secrets and tips offered by your friends and stock market experts.

Investment Strategies For the Stock Market

When it comes to Investment Strategies for the Stock Market most people believe that there is only one safe strategy.

'Buy and Hold'

The reason why most people believe that this is the safest investment strategy for the stock market is because that is exactly what their financial advisors have told them. Have you ever heard the phrase

"The key to successful investing is Time In the Market NOT Timing the Market"

I believe that this is a lazy approach to investing and is really just an excuse to hide the fact that some financial advisors have no idea what the market is doing. Wouldn't successful investors use multiple investment strategies for the stock market? If the market is at a record high and there is a chance of a correction then surely there is something that you can do (other than selling your stocks) to protect some of your profits?

The reason why financial advisors don't want you to know about any other investment strategies for the stock market (other than buy and hold) is because it isn't in their interest for you to know about them. They want you to remain reliant on their advice and have you feel as if the stock market is a very scary and dangerous tool - only to be tamed by the so called experts.

What is your opinion? I certainly believe that at times the stock market can be very scary and dangerous but like any thing; the more you educate yourself the more comfortable you will feel with it.

So what are some Investment Strategies for the Stock Market other than buy and hold?

Let's have a quick look one very simply investment strategies that can be used to great effect on any stock market.

Covered Calls

This is one of the most effective, low risk investment strategies that can be used on the stock market. The basic idea to sell call options on a stock that you own. What? I hear you saying. In simple terms it means that you are renting out your shares for a monthly premium and in return you are giving somebody the option to buy your shares at a predetermined price that is higher than what you paid for them.

Let's say you own 1000 XYZ shares that are worth $15.00 each. People will pay you a monthly premium to have the option to buy these XYZ shares at a predetermined price within a predetermined time frame.

For instance someone might offer you $500 for the right to buy your shares at $16.00 within the next month. Why would they do this? Because if the shares happen rise up to $18.00 they will be able to buy 1000 XYZ shares at a $2.00 discount per share ($18-$16).

The great thing about this strategy is that both parties can win e.g. If this was to happen you would be happy too because you would get to keep the $500 premium and you would also make $1.00 from every share that you sold because you bought them at $15.00 and sold them at $16.00.

What happens if the share price was to go down?

If the share price was to go down from $15.00 to $13.00 then you would still get to keep the $500 premium which would reduce your paper loss from $2.00 per share to $1.50 per share.

Writing covered calls (or renting out your shares) is one of the most commonly used investment strategies by the rich. It is a great low risk low risk investment strategy for the stock market that everybody deserves to know about.

So there you have it a simple investment strategy for the stock market that can help increase your cash flow and also gives you downside protection. What more could you ask for in a stock market investment strategy? So next time you see your financial advisor ask them about covered calls and see what response you get. My bet is they probably won't even know what you're talking about because their university course didn't teach that subject.

An All-Or-None Stock Market Order - What is It?

This might sound like a good thing for the investor, but it does need a large amount of money to be able to manage it well. Stockbrokers do not give priority to all-or-none (AON) orders, however, and the investor would be well advised to make sure that there are sufficient stocks available to make his or her order achievable before placing the order.

Here is an example to illustrate what is meant by an AON order. There are 700 of a particular type of shares available, but an investor wants to by 1,000 of them. If he places an AON order for 1,000, then he will have to wait until there are at least 1,000 of the shares available. In the meantime, however, the value of those shares could rise, which would cost him a lot more for the 1,000 shares than he was originally prepared to pay. There is also the question of whether the stockbroker can get the order through when the time comes.

When the full quantity of stocks does become available, the value could be lower, or might have remained the same as it was at the time of placing the AON order. The lower price is particularly likely if there has been a bear market, when lots of people are selling their shares, and this causes values to drop. In the case of an AON order, the investor will now spend less on his purchase than originally planned, and this means that the risk associated with the AON order is less.

Inflation is the biggest problem in connection with AON orders, because the investor might have to spend more money than he originally wanted. He could of course try to cancel the order, but if this is not possible he will have to go ahead and purchase the shares.

Having placed an AON order, there is of course also no guarantee that the requested stocks will be available, and they may not be available for quite some time, perhaps even a number of months. Again, the stock market investor may decide to cancel the order during this time, and not receive the shares he ordered. Because of the low priority allocated to AON orders by stockbrokers, this wait and subsequent cancellation is quite a common occurrence.

If you do decide to place an AON order, then be careful to select a stockbroker who is experienced with these orders and can be relied upon to do his or her best for you in this regard. Be wary of a stock market broker who is likely to cause delays in your order, because of their low priority for him.