Trading in the stock market might sound like a laborious task that can plunge you into anarchy. However, getting a hold on its fundamentals has facilitated the buying and selling of stocks conveniently.
Modern computers have significantly minimized human mediation in the domain of trading. However, if one is unaware of the basics and techniques on how to navigate through the market, they might end up losing a lot of money.
It is important to note the market close time and the opening time(from 9 am to 4:30 pm) so one can be prepared in advance. This blog shall be discussed some crucial aspects to keep in mind when entering the world of trading –
The word trade is not as easy as it sounds. It deals with buying and selling securities in the financial markets. One needs to gain a deeper insight into how the market operates, and mere knowledge of playing with numbers won’t take you very far.
One must start with the fundamentals like the bid and ask prices. Both the buyer and seller set prices on their stocks.
The buyer dictates the price they are willing to pay for the stock – the bid price.
The seller dictates the price for which the stock is worth – the asking price.
The ultimate goal while trading is to buy low and sell high. Investors often follow a reverse ideology. If a stock price has grown recently, it will attract more buyers; hence investors would be willing to pay a higher price for that stock. After the investment, they seek to sell off that stock at an even higher price. This is how prices of a particular stock skyrocket.
In the world of digitalization, people are opting for online brokers. However, if one chooses to trade online, they must know precisely where to invest in. Some orders are restricted over prices while the others have a time restriction.
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A stop-loss order directs one’s broker to automatically sell off the stock after it has reached a critical point that if it falls any further, the trader could sustain major losses.
This prevents a person from suffering losses once their preferred stock hits rock bottom. It can also help protect profit and even guide you when the prices escalate on security.
The traditional mindset of people dictates them that a stock market is an unfathomable room packed with people in suits, all driven by chaos. However, that ideology can only be seen at the New York State Exchange. The NYSE is similar to Wall Street that most people have in mind.
Most people now trade over Nasdaq. It is a computer-based stock exchange where buyers and sellers trade electronically without meeting in person.
Computers maintain a record of all orders. There is no dedicated physical space for Nasdaq, unlike the NYSE.
Protocols To Ensure While Trading
Everything to keep in mind while trading before the close time is mentioned below –
1. Steer Clear of Doubtful Investments
Every trader needs to prepare a thorough list of protocols like setup, order price and closing time to check before considering an order. This can help save a lot of money lost while investing in volatile stocks.
2. Employ Stop-Loss
Never take it to the pride that one cannot lose. Even the stocks showing most potential can plunge under. Hence, always create an exit strategy like stop-loss to automatically sell off a stock that might fall below considerable prices.
3. Consult an Expert
Even the most confident of traders can be wrong and invest carelessly. It is always good to corroborate one’s investing decisions with an expert in the domain.
4. Be Technical and Patient
One cannot just invest recklessly in stocks that might show potential. Make a list of events and details and be technical before investing. Monitor the stock intricately before purchasing it.
5. Place Multiple Bets on Low Risks
Investing in expensive security can often turn tables on a person if the security does not show promise later. Thus it is advisable to invest in securities that are low priced.
One should not sustain losses of more than 1-2% of the capital invested.
6. Invest in Stocks in Vogue
One should not be a rebel and let their pride get the better of them while investing. If the market is inclined towards a particular stock, its because the stock is yielding profits. Hence it is recommended that one follows the stocks in vogue in the market to yield better results.
7. Trading in Pre- and Post-Market Hours
Every trader knows the general time of trading, from 9:30 am to 4:00 pm. However, one must also know that there are pre- and post-market sessions that can often be very beneficial to traders who know to navigate through.
Pre-market hours are between 4:00 am, and 9:30 am.
Post-market hours are between 4:00 pm and 8:00 pm.
These after trading hours are often mercurial and only witness a fraction of trades compared to the billions of trades happening during normal market hours.
One must do their research while trading in after hours.
8. Company Announcements
Companies often announce earning reports in the after trading hours instead of regular market time. Often, this helps firms avoid a knee-jerk reaction that misconstrues the true meaning of the stock.
A company could incur some serious losses due to a large move out of traders if the reports are worse.
One can react to company announcements proficiently. Stock prices would reflect a better value once the markets reopen, thereby benefiting the company.
9. Economic Indicators
A lot of economic indicators are released at 8:30 am, an hour before the market opens. The market reacts to these indicators leading to big movements in price, which changes the course of trading for the day.
10. Liquidity Limitations
Since the number of traders in after-hours is diminutive, one might encounter a hard time selling off their stocks. The market would be less liquid. If an earning announcement is bad, and one intends to sell their stocks swiftly, they might fail to do so.
The regular trading sessions are more liquid and efficient, causing prices more reflective of fair value. One must realize that different brokerage has different rules on trading hours.
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Selling off stocks, be it at a profit or loss, could be relatively easy during the trading hours compared to after hours. After hours may suit some traders trying to profit on expected news, however, it is not recommended for most.
Traders are significantly less, and deals are far-fetched. Lack of liquidity in after-hours can do more harm than anticipated.