Business majors and full time stock market investing geeks like to spend their spare time poring over esoteric data behind a company. They want to know the flux to capacitor ratio, the tron squared derivative and the E=MC² before they’re ready to pull the trigger on any deal. Sorry, boys, but sometimes you have to call gobbledygook what it is – gobbledygook. All that stuff is fine if you’ve got the time but what about the newbie looking an initial gander at a stock market chart on his computer?
Here’s what you do to keep your brain from imploding and palms from breaking into a cold sweat.
1. Determine if it’s a bear or bull market. Bull market conditions mean that, overall, prices are generally trending higher, while a bear market suggests lowering price conditions. Many times you can apply a layman’s eyeball to a chart and determine what the current conditions are. A simple way to confirm is to apply a 200 Moving Average to your time frame and check the price. If the line is up and price the same, you’ve got a bull. Line moving down and price below indicates a bear.
2. Ranging market. We’re not going to lie to you. Often the stock market falls into what is called a range, where it wanders back and forth over a relatively narrow price span. It’s tougher for the average trader to make money under range conditions. Some choose to sit out the range completely and wait for a trend to appear. If you do trade the range, consider taking smaller positions and cut your profits and losses sooner. Trading a range badly can kill your account, though your broker will be happy at the extra commissions.
3. Check the dollar. In the current economic environment, when so much of the stock market movement is a reaction to macro world events rather than intrinsic company value, it’s often true that when the stock market is weak, the dollar is strong and vice versa. For example, if you think the market is bullish but the dollar is also showing strong, step back and take another look before opening a big position.
Unfortunately, much of what you learn in college related to stock investing is based on a market that doesn’t exist any more. As we said, so much of today’s movement is based on speculation and knee-jerk static reaction to political events halfway around the world. If you’re looking for a safer long term investment play, check into income property investing.
The Young Wealth Team
Flickr / ericskiff