Introduction to Trading
Are we like spiders, spinning our own webs?
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Trading in stocks and bonds is easy. It's easier, in fact, that buying and selling almost any other product.
Try buying and selling a bike, for example. Sure, it's easy enough to buy them -- many stores have them. Plunk your money down and you can practically ride out of the store with one. But try selling the bloody thing when you've had enough or would like to trade up, say for a mountain bike! That's when hassles begin -- creating an ad and getting it in the paper, waiting for callers, meeting potential buyers, putting up with criticisms, and everything else that goes with haggling.
But stocks and bonds are different. Trading is all arranged for you -- they make it real easy for you to lose your shirt!
You don't need a shopping mall or even a shopping cart or market stall. You don't even need to meet your trading partner -- probably a floor specialist. All you do is call your broker and place an order: Buy 200 shares of AT&T! Sell 400 shares of IBM! The broker takes your order (perhaps after a bit of chitchat), thanks you for the business, and hangs up. No small talk required. Everybody's busy making money! You don't even have to hold the merchandise -- the broker takes care of it for you. Part of the service.
It's even easier on the Internet, because there's no need to talk to a broker! Just punch in the stock ID (the ticker symbol), the number of shares to be traded, whether it's a buy order (or a sell order), whether it's a cash trade (or a margin trade), and whether it's a market order (or a limit order).
That's all there is to it! That's all, that is, until you get ready to make your first purchase and ask that very first question: What stock should I buy?
That's when the problems begin. And the analysis. And for that you need information, like in the form of price charts.
At the supermarket you can see the merchandise, the prices, the quality of the goods. You can buy whatever strikes your fancy and meets your budget. But that's not how it goes with stocks and bonds. For one thing, you don't have to pay cash; you can trade on margin and borrow from your broker. You certainly won't find the equities on display! But even if you did, you wouldn't be able to tell by looking at them whether they're good or bad for you, cheap or pricey, worth having or not.
The fact is, you couldn't care less how they look. The only point of interest is whether you can -- within your designated time frame -- realize a profit.
That's it. That's your only concern. Were it not for their potential increase in value, why would you bother owning them? Plain old cash would be a lot better.
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To make a go of it in the marketplace you mist have a plan of operations, a strategy, a model. There's an old saying in the military that goes: Proper planning and preparation prevents piss-poor performance. In the most compact terms, this means you have to know what you're doing, or risk getting skinned! You have to learn, to earn.
Isn't that asking a lot?
I can just hear you saying, "How in the world can I work out a plan for buying and selling equities when I don't know the first thing about buying and selling equities?" That indeed is a good and appropriate question. And the answer is, you can't possibly know what to do, at least not right away. That's a big problem when learning anything in or about the real world. It's a matter of lifting yourself up by your bootstraps. But then, isn't that why we have schools?
It's especially true for managing your personal life, and specifically your trades in the markets. You have to know what equities are available for trading. You need to understand what they can do, how they behave under different market conditions. You have to know where to get the right data and appreciate how to interpret what you get. Based on your inquiries, you have to select equities that have the desired trading potential. Then of course you need to initiate a trade, so your timing has to be good.
You need to establish what type of market player you are -- whether you want the excitement of quick and dirty trades for an immediate profit or have a more relaxed personality and prefer the longer term "investing" approach?
If you don't know the kinds of things to buy and sell, or don't have a clue about where to get information about specific stocks and bonds, or don't know the first thing about analyzing equities, or can't time your trades properly,... well then, you have a lot to learn. Be patient. It takes time. And words have to catch you when you're ready to read them.
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