It can be challenging and at the same time lucrative to trade in the stock market. In order to be successful in trading, you will need to know when the market in a bullish or a bearish mood, and you should be able to use the tools of market analysis to develop a trading system. One of the best resources that you can use to get this knowledge is the internet. This article is really about stock trading for dummies, NOT a starting guide in online stock trading for beginners.
Sign of a start of the bull market
Before you begin trading in bonds, stocks as well as other funds, it’s essential to know how to identify a market that is in a bullish mood. This will help you to plan your trading strategy to your maximum benefits. There are some signs that indicate that the market is entering a phase where investors have full confidence in it. Some of these include:
- Bull markets usually precede a recovering economy.
- The rates of interest are usually low.
- The statistics from industrial production begin inching higher.
- The cyclical and industrial stocks start to rise.
- A bull alert pattern starts to show.
Signs of a start of the bear market
If you intend to trade successfully in stocks, you will require knowing the beginning of a downward trend or a bear market. This will help you to make the necessary adjustment in your strategy of trading.
- Bear markets usually precede a declining economy.
- The rates of interest begin to rise.
- Stocks in energy, material as well as consumer staples perform well.
- A bear alert system begins to show.
Trading in a bear market
When there is uncertainty and fear in the market, this is an indication of the bear market. In such a situation, you should have a strategy that seeks to sell those companies that are weak. Some of the indicators of the weak companies are:
- Poor earnings
- Companies that are in sectors that are weak
- Those which are in an economy that is declining
- Those whose stocks are performing badly as compared to the average stocks.
Trading in the bull market
The bull market is an indicator of investor’s confidence. In such a situation, the best approach is to seek to buy from those companies that are fundamentally strong. Some of the characteristics of such companies include:
- Their earning grows faster as compared to the average stocks earnings.
- They are in sectors that are strong
- Are in an economy that is growing
How to come up with a good trading system
In order to trade successfully, there is a need for good judgment as well as trading systems that are solid. You should begin by gathering the tools for system development. Use historical data to test the system. Identify the pitfalls of the design of your system. Remember to test the system using blind simulation and also account for any slippage. Have a trading journal and evaluate the trades frequently. Ensure that you develop and even perfect the trading system. Following these guidelines will help you make the best move in the stock market.