The stock market was viewed as a field with a higher degree of barriers to entry. However, through technological advancements, this is not the case anymore. Literally, anyone with a bit of capital can now open an online brokerage account and invest directly into the financial markets. But as the new entrants to the market increased in number, it became even more difficult to successfully make money in the long term through stock trading.
21st Century Stock Trading
Since the financial markets are easily accessible to the vast majority or the masses, this has significantly increased the volumes experienced in the exchanges. Due to increasing competition, some brokerage firms, even individuals with almost no capital to trade on, have leveraged their positions. Since the inter-connectivity brought about by new media has connected the global markets, it is extremely easy to invest in almost any type of financial instruments or even in international markets. Meaning even you can trade stocks online while having a job and familial obligations.
How to Make Money
The basis of making money as a trader is to accurately gauge the value of a particular stock. A stock of a company doesn’t reflect the true worth of the company but rather the general public’s perspective of its worth. Meaning the price is subject to free market forces, i.e. demand and supply. Increasing demand would result in the price increasing as the supply remains constant and vice versa.
Due to the dynamic nature of a stock’s price, it is possible for a particular stock to get undervalued or overvalued. This is where the traders come in, they purchase undervalued stocks in the hope that it appreciates reflecting it’s true worth or sell overvalued stocks because the market always corrects any irrational behavior in the price.
Therefore, to successfully make money trading online stocks, it is imperative that the trader has the adequate analytical knowledge, which includes fundamental, technical, and economic analysis. Furthermore, it’s important to be aware of all the current events in the world, because events around the world have a huge influence on the market behavior. For example, the shutdown of the federal government in the year 2013 sent the financial markets such as NASDAQ and the New York Stock Exchange in a downward spiral due to the uncertainty. And the market immediately recovered following the resolution in Washington.
The important thing to understand is that a trader can make money whether the market goes up or down. If the trader can successfully predict that a particular stock will lose value in the short term, they can short-sell the stock and acquire a decent return off it. Day traders can actually make money when the overall outlook of the market is negative. However, an optimistic or bullish market is a better time for a long term investor.
There are different types of trading styles. Some are purely preferential while others are more compatible, based on the market scenarios and price behavior. These styles are explained as below:
- Fundamental Trading – Fundamental traders trade based on fundamental analysis, which examines the core operations of a company and its performance, such as favorable financial reports, increased price-to-earnings ratio, and acquisitions.
- Technical Trading – Traders who prefer to trade using technical analysis or the analysis of charts and price behavior. They utilize indicators and oscillators such as accumulation/distribution line, relative strength index, Aroon oscillator, and moving averages to determine the subsequent price behavior.
- Momentum Trading – These traders trade along with the trend. Trend is the overall direction where the price is headed in retrospect. These traders identify trends and trade along with them. Once they feel that the trend is weakening or a technical reversal is identified, these traders close their position and look for the next trend.
- Scalping – Scalpers are traders who make numerous and frequent trades throughout the day. This particular style of trading exploits, even the tiniest of margins, which can arise in the bid-ask spread. Scalpers are not restricted to a particular market however they are more inclined towards the Forex markets.
All forms of trading are associated with their respective risks. However, if your trading activities are successful, it can prove extremely lucrative. Trade Genie specializes in trading and investment advisory service, helping many traders in their path towards financial freedom.