The stock market might seem like a mystery, but once you learn a few facts, it isn’t mysterious at all. When you understand basic facts about the market and use them every day, you can make your own stock market predictions.
Buy Low, Sell High
Buying low and selling high is a basic fact of the stock market. But not always easy to accomplish. Visualize the stock market as your own retail business. The goal of a retail business is to buy products at a lower price and sell them at a higher price. That is how to make profits.
The key to making a profit in the stock market is knowing when to buy and when to sell a stock. You can do this by understanding the overall market, key indicators or setting your own parameters for buying and selling.
Dividends
Dividends are usually paid quarterly and shown as the yield. The yield is a percentage of the current stock price. You can either reinvest the dividends back into the stock or take the dividend and put it into something else.
Even if you’re holding a stock that has dropped in price, you will still get the dividend, which lessens your losses on the stock. Companies that pay a dividend are usually more established, but you still have to do your research because higher yields can be misleading.
Leading Economic Indicators
Leading economic indicators can help you make an educated guess about which direction the market will be heading. Leading economic indicators include unemployment figures, consumer spending, product inventory, housing starts and average earnings.
Once you understand these indicators, you can make stock market predictions. According to the experts at Money Morning, “To predict the stock market, understanding the health of the economy, as well as the policies surrounding that economy, are key. Examining your goals as an investor—such as knowing your time-frame and risk tolerance—will help you choose the right information to look at.”
The Difference Between Traders and Investors
A market trader will buy and sell stocks often in the hopes of making consistent profits. They might buy a stock and sell it on the same day and rarely hold it longer than a couple of months.
An investor is a person that invests in stocks for the long term. They will research individual companies and determine which companies look best for long-term profits.
You’re Not Smarter Than the Market
No matter what analytics you use or how hot that stock tip is, you are not smarter than the market. This might be one of the most important stock market facts you should learn. Being confident is one thing, but overconfidence can lead to big losses.
There is never a sure thing in the stock market. As soon as you think you can beat the market, the market will turn on you and create losses. Being humble while trading or investing will help you survive the ups and downs of the stock market.
When you fully understand these stock market facts, you will become a better trader or investor.
