Puts and Calls

A call option is the right (but not obligation) to buy a stock at a predetermined price until a certain date in the future. A put option is the right (but not obligation) to sell a stock at a predetermined price until a certain date in the future. The advantage of options is that they cost a fraction of what it would cost to purchase the stock itself and they normally increase in price at about the same rate as the stock itself does. The disadvantage is that they have an expiration date at which time they become worthless. Another disadvantage is that you may lose all the money you invest in options (although you will rarely lose more that you would have lost had you bought the stock because you didn't pay as much to start with).

Maturity Dates

Options are available in several different maturity dates as well as prices (called strike prices). The maturity dates are normally staggered several months apart. This is the date that the option will expire. They will normally be two or three months apart with the longest period being about nine months. An exception is a long-term option referred to as a leap that may not mature for one or two years. Here is an example of what might be available in options.

These are options for Renal Care Group (symbol RCI). Notice that the stock is currently trading at 47.10. We see on the left portion of this example all call options available for May 06. The strike prices are 40, 45, and 50. The 40 and 45 is referred to as "in the money" since it will give the owner of the option the right to buy the stock at 40 or 45 and then sell it on the open market at 47.10. The other option is referred to as "out of the money". The 50 option gives you the right to buy the stock at 50 when you could simply buy it on the open market right now at 47.10. The difference is that this option will give you the "option" to buy it at 50 until it expires in May 06 no matter what the stock does in the meantime. If the stock goes to 53 you can still exercise your option to buy it at 50 and then sell it on the open market at 53. This is the attraction of options. You do not have to actually exercise an option and be involved in the buying (and the necessary funds to do so as well as commissions) and selling of the stock. As the price of the stock changes the price of the option will change as well. You will simply sell your option at a profit.

In the example above the recommended option is the May 06 50 call. May 06 because it affords us the greatest amount of time before expiration and 50 because that is the first option that is "out of the money".

Options do not exist for some stocks. Also some types of brokerage accounts such as IRA accounts are not eligible to trade options.

This has been a very brief discussion of options. Your broker has publications that will go into more detail. Your broker will also require you to sign an options agreement before you may trade options. Options can give you a great deal more leverage with your money than buying the stock itself; however, options are considered very speculative and therefore risky investments. Make sure you have a firm understanding of options before attempting to buy and sell them.

A recommended investment strategy is that of maintaining a constant value for the stock (or option) that you purchase. For example, you buy 1000 shares of ABC Corp. for 25 per share. That is an initial value (and constant value) of $25000. At the same time you will commit 10% ($2500) cash as a reserve to buy more later if needed. Your objective now is to keep your constant of $25000 in ABC Corp. You will monitor its price each day and adjust your position in ABC Corp. to keep it value at $25000. If it goes up enough that you can sell 100 shares and still have a value of $25000 in the stock, sell 100 shares. If it goes down enough that you need to buy 100 shares to get the value back up to $25000, buy 100 shares. You may do this in both directions several times while you hold the stock. The effect this produces is that you are always selling while the price is up and buying while the price is down. Always buy and sell stock in lots of 100 shares (and options in lots of 2). This will allow you to profit from a 10% move in prices. You will continue to monitor the value each day while you hold the stock and make an adjustment when necessary.

The amount that you commit to reserve is to be considered a common reserve to be shared between all of the entries that you are managing with the Constant Value Investing strategy. To explain this, in the example above you would have committed $2500 to reserve for your position in ABC Corp. You may also have another position in XYZ Corp. for which have committed $1500 to reserve. You now have a common reserve pool of $4000 that may be used to buy additional shares of either stock as needed. The important thing to remember is that before you enter into any new positions on other issues that you must keep your reserve pool. Don't deplete your reserve pool to open new positions because an important element of this strategy is to always have funds available to buy more shares when the price is down.

If you are just getting started with options trading, you may feel a bit overwhelmed, since there is a wealth of available options and a multitude of ways to trade these same options. However, if you are determined, you can implement options trading as a successful investment strategy. You only need to realize what your ultimate goal is and what you hope to accomplish.

Since options trading can take on multiple roles in an investment portfolio, it is imperative that you have clear aim and focus before employing this particular method of investing. For example, your goal may be to protect your investment portfolio if the market takes a turn for the worst, or perhaps you have decided that you would like more income from your stocks. Whatever your goal or strategy is, it is essential to have one.

The next step, after deciding what you hope to achieve with options trading, is to begin learning about different options trading strategies so that you can implement a strategy or combination of strategies that will prove effective for your investment goals. There are a many strategies available for trading options, but the ones you implement will depend on what you hope to achieve.

After you have done your research, you are almost ready to begin trading options. Now you will need to choose a brokerage firm. The brokerage firm you choose will depend on the level of personalized service that you will require. If you are not yet quite comfortable with investing, you will do best to choose a firm that will guide you along as you master options trading. If you are pretty comfortable with your knowledge level, then you may choose to go with a discounted firm that does not offer the same level of personalization as the more expensive firms.

Before you begin trading options, you will be required by your brokerage firm to fill out and submit an options trading agreement. This form is used by the firm to ascertain your knowledge of options trading as well as your overall investment knowledge.

Your firm will approve you for a certain level of options trading based on the information you provide on the options trading agreement form. So if you are just getting started, it is probably safe to say that you will not be approved for certain strategies at first. This is because some of the strategies associated with options trading are pretty risky for an unknowledgeable person, and the firm uses this as sort of a built in protection feature, for both the client and itself.

Trading stock options can be a rewarding experience, both mentally and financially. However, in order to gain the most from your options trading experience, you must be diligent about your research and willing to continually expand your trading knowledge.

The average stock trader is a loser. Unless you want to lose you can't afford to be average.

Learn the answer to the 3 most important questions for successful trades:

• What stocks to buy?
• When to buy them?
• When to sell them?

Novice traders have a 95% failure rate. When they fail, they chalk it up to bad luck. Luck has no place in a well thought out approach to investing in the stock market.

Successful traders don't care whether the stock market is gaining or falling. In fact, the panic associated with a falling market and the greed associated with a rising market cause many investors to behave in very predictable patterns. When we learn to recognize these patterns, we can take advantage of both a rising and falling stock market.

One of the most valuable "skills" to a successful stock market investor is knowing when to get out of a position. In fact it could be said that knowing when to sell may be more important than knowing when to buy.

When you are trading in the stock market, volatility is essential to your success. You can make money on an upturn or downturn in the market, you only need volatility.

One misconception shared by novice traders is that there are unknown entities controlling prices and making money on the losses of others. They believe that if they could identify and get closer to these people they could share in their profits. Who do they perceive as these entities? They are the brokers, market makers, specialists, and traders who have more experience than the rest. These expert traders are the ones that we are interested in. Learning to make money in the stock market is not easy! The traders who are prepared with the proper strategy and discipline make huge profits in the stock market! We provide you with the essential knowledge and cutting edge strategies that are necessary for your success.

Why do traders fail?

The top reasons include:

• Poor understanding and knowledge of the stock market.
• Lack of reliable signals to enter a trade and later to exit.
• Lack of patience and discipline.

We can provide you with the following tools to allow you to use volatility to your advantage and make money in rising and falling markets.

• A unique, proven winning strategy that is easy to understand and use.
• Clear signals for stocks to buy.
• Clear signals to exit the positions that we previously recommended.

Without the proper tools and strategy, your chances of success are small. We will provide you with the guidance to transform you into a competent stock market trader whether you are a beginner or a more experienced trader.

To enter the battle and come away a winner you need:

• Knowledge.
• Proper tools.
• The will to win!

We will show you a profitable strategy and give you everything you need to know to implement it successfully.

Discover a system that you can use now to generate profits in the stock market. With our proven system you don't have to be a seasoned pro to make money in the market and you don't have to have a lot of money to get started!

During the past years we have been developing and refining a set of computer models that work. Now they can work for you! Our system is uncomplicated and works in any market - up or down!

It takes just minutes a day to follow our recommendations and put them to work for you. It is a very simple process that you can follow and it doesn't require a large amount of money.

You can trade on the stock market from virtually anywhere! Many people trade the market worldwide. We live in a global economy and a global market. The stock market is no different. You can trade stocks in Canada, Israel, England, Brazil, Australia, etc. All that's really required is a computer with an Internet connection.

Once you begin to use our recommendations you will have a major advantage over most people trying to make money in the stock market. Each week there are many "newbies" entering the market. Most of these people don't have a clue what they're doing. Now you can take advantage of this marketplace for profit, in any market!

Charts

Your have probably seen and heard about stock charts. What are they? They could be considered an X-ray that reveals a lot about a stock that is not otherwise obvious. Simply put, a chart is the record of a stock's price and volume data over time. We use charts to reveal predictable cycles that many stocks follow. Each of our stock recommendations comes with a 640 day chart. We detect cycles and show you the expected influence on the stock price movement that these cycles are indicating.

If you are a first time investor you are no doubt wondering what the best investment vehicles to get involved with are. There are many to choose from including stocks, bond, and mutual funds. This article will focus on stocks and how to invest in them.

Before you can invest in stocks you have to understand what they are. Stocks are paper assets companies use to raise money for many different purposes. If you purchase stock, you become part owner of that company.

In order for a company to sell stocks they have to be registered and given a ticker symbol. This is an identification tag for a stock. By this symbol, people will know the company and stock. Companies sell different kinds of stocks including blue chip and penny stocks. Blue chips stocks are the best and are considered the safest because the companies the stocks represent are financially secure. These are the type of stocks that guaranteed to pay dividends.

When a company does its financials at the end of the quarter or year, if the company made a profit, it determines whether to pay a certain amount to stockholders. This money the company pays out is known as a dividend.

When investing in stocks there are certain things you need to know. If you do not go through a broker you can invest in a company by using three different methods. These methods are:

• The company's direct stock purchase plan. There are a number of companies that offer direct stock purchase plans. Why buy through a broker when you can buy direct.
• Use a DRIP program. If the company you are interested in does not have a direct stock purchase plan, you may be able to go for their dividend reinvestment plan (DRIP), if they have one available. This is a great tool for growing your portfolio but you must own at least one share of the company before you can enroll.
• Buy through a specialized service. When you are ready to buy stocks, there are companies that are willing to sell you stocks on an individual basis. Instead of buying a large amount of stocks, just go for one or a few initially. Then you can buy more later.

If you rather buy stocks through a broker, you must realize that you will have to pay a commission. This is a consequence of using a broker. If you don't want to deal in stocks directly, dealing with a broker is the best method. Here are steps you can take to buy from a broker:

• New accounts require a deposit. If you are new to buy stocks and use a broker, you will need to open an account and deposit at least $500 to $1000.
• Use a discount broker. A discount broker deals with self-directed investors. With them, you do all the work; they just buy and sell for you. Your commission with them could be anywhere from $8 to $30 dollars.

Stocks are not that hard an investment vehicle. You just have to know the players and how to play the game.

First of all, I want to point out the long term historical return of the stock market is a little bit higher than 10% per year. Very few long term investments can make this claim. Some would argue that real estate is a better investment, and it may be in some instances, but I would rather put my money in investments that require no maintenance, renters, property taxes, or other "drawbacks" as I would refer to them. Of course, your own house, that you live in, is another story.

Now you are probably thinking, "That is great and everything, but how does this help me with making a million dollars in the stock market?" I am glad you asked. One of the most important lessons about investing in stocks that anyone can give you is patience. If you think you are going to make a fortune in the stock market overnight or even in a couple years, then I wish you good luck, but unfortunately you are more likely to lose money than gain money by trying to beat the market. However, if you are willing to find some good companies to invest in and are patient, you are very likely to earn a nice return in the stock market. In fact, even stocks that have performed very poorly, can earn you some decent money off your investment as demonstrated by the Stock Performance Guide at the 1stock1 website.

Another very important investment lesson is time in the market. Over time most established companies continue to grow and, as a result, their stock price also grows. In the short term, stocks can be very volatile and their prices can go up and down daily. However, as you extend your time frame, a solid stock performs in a much more predictable manner. This doesn't mean your investment will always make money, but time does put the odds in your favor.

The third lesson I will give you about stock investing is discipline. Determine why you are investing and what you want to accomplish through investing. Once you decide your reasons for investing, come up with a plan and stick to it. Don't allow yourself to get lured into the next "sure thing" in the stock market. For every one that works out, several more will fail. If it was a sure thing, investors would know this and bid the stock price up accordingly. If you know information that the rest of the stock market doesn't, then your looking at insider trading charges. It is very easy to be tempted to earn the "quick buck" and much more difficult to be disciplined with an investment plan. As expected, the road that requires the most work yields the best results.

Finally, I would like to stress the importance of diversification. Probably the biggest mistake you can make in investing is putting all your money in one stock. This strategy is not only risky, but also less likely to earn as a high of return as a diversified portfolio. Having your money invested in several stocks helps minimize the risk while still increasing overall return.

Over the past few years the stock market has made substantial declines. Some short term investors have lost a good bit of money. Many new stock market investors look at this and become very skeptical about getting in now.

If you are considering investing in the stock market it is very important that you understand how the markets work. All of the financial and market data that the newcomer is bombarded with can leave them confused and overwhelmed.

The stock market is an everyday term used to describe a place where stock in companies is bought and sold. Companies issues stock to finance new equipment, buy other companies, expand their business, introduce new products and services, etc. The investors who buy this stock now own a share of the company. If the company does well the price of their stock increases. If the company does not do well the stock price decreases. If the price that you sell your stock for is more than you paid for it, you have made money.

When you buy stock in a company you share in the profits and losses of the company until you sell your stock or the company goes out of business. Studies have shown that long term stock ownership has been one of the best investment strategies for most people.

People buy stocks on a tip from a friend, a phone call from a broker, or a recommendation from a TV analyst. They buy during a strong market. When the market later begins to decline they panic and sell for a loss. This is the typical horror story we hear from people who have no investment strategy.

Before committing your hard earned money to the stock market it will behoove you to consider the risks and benefits of doing so. You must have an investment strategy. This strategy will define what and when to buy and when you will sell it.

History of the Stock Market

Over two hundred years ago private banks began to sell stock to raise money to expand. This was a new way to invest and a way for the rich to get richer. In 1792 twenty four large merchants agreed to form a market known as the New York Stock Exchange (NYSE). They agreed to meet daily on Wall Street and buy and sell stocks.

By the mid-1800s the United States was experiencing rapid growth. Companies began to sell stock to raise money for the expansion necessary to meet the growing demand for their products and services. The people who bought this stock became part owners of the company and shared in the profits or loss of the company.

A new form of investing began to emerge when investors realized that they could sell their stock to others. This is where speculation began to influence an investor's decision to buy or sell and led the way to large fluctuations in stock prices.

Originally investing in the stock market was confined to the very wealthy. Now stock ownership has found it's way to all sectors of our society.

What is a Stock?

A stock certificate is a piece of paper declaring that you own a piece of the company. Companies sell stock to finance expansion, hire people, advertise, etc. In general, the sale of stock help companies grow. The people who buy the stock share in the profits or losses of the company.

Trading of stock is generally driven by short term speculation about the company operations, products, services, etc. It is this speculation that influences an investor's decision to buy or sell and what prices are attractive.

The company raises money through the primary market. This is the Initial Public Offering (IPO). Thereafter the stock is traded in the secondary market (what we call the stock market) when individual investors or traders buy and sell the shares to each other. The company is not involved in any profit or loss from this secondary market.

Technology and the Internet have made the stock market available to the mainstream public. Computers have made investing in the stock market very easy. Market and company news is available almost anywhere in the world. The Internet has brought a vast new group of investors into the stock market and this group continues to grow each year.

Bull Market - Bear Market

Anyone who has been following the stock market or watching TV news is probably familiar with the terms Bull Market and Bear Market. What do they mean?

A bull market is defined by steadily rising prices. The economy is thriving and companies are generally making a profit. Most investors feel that this trend will continue for some time. By contrast a bear market is one where prices are dropping. The economy is probably in a decline and many companies are experiencing difficulties. Now the investors are pessimistic about the future profitability of the stock market. Since investors' attitudes tend to drive their willingness to buy or sell these trends normally perpetuate themselves until significant outside events intervene to cause a reversal of opinion.

In a bull market the investor hopes to buy early and hold the stock until it has reached it's high. Obviously predicting the low and high is impossible. Since most investors are "bullish" they make more money in the rising bull market. They are willing to invest more money as the stock is rising and realize more profit.

Investing in a bear market incurs the greatest possibility of losses because the trend in downward and there is no end in sight. An investment strategy in this case might be short selling. Short selling is selling a stock that you don't own. You can make arrangements with your broker to do this. You will in effect be borrowing shares from your broker to sell in the hope of buying them back later when the price has dropped. You will profit from the difference in the two prices. Another strategy for a bear market would be buying defensive stocks. These are stocks like utility companies that are not affected by the market downturn or companies that sell their products during all economic conditions.

Brokers

Traditionally investors bought and sold stock through large brokerage houses. They made a phone call to their broker who relayed their order to the exchange floor. These brokers also offered their services as stock advisors to people who knew very little about the market. These people relied on their broker to guide them and paid a hefty price in commissions and fees as a result. The advent of the Internet has led to a new class of brokerage houses. These firms provide on-line accounts where you may log in and buy and sell stocks from anywhere you can get an Internet connection. They usually don't offer any market advice and only provide order execution. The Internet investor can find some good deals as the members of this new breed of electronic brokerage houses compete for your business!

Blue Chip Stocks

Large well established firms who have demonstrated good profitability and growth, dividend payout, and quality products and services are called blue chip stocks. They are usually the leaders of their industry, have been around for a long time, and are considered to be among the safest investments. Blue chip stocks are included in the Dow Jones Industrial Average, an index composed of thirty companies who are leaders in their industry groups. They are very popular among individual and institutional investors. Blue chip stocks attract investors who are interested in consistent dividends and growth as well as stability. They are rarely subject to the price volatility of other stocks and their share prices will normally be higher than other categories of stock. The downside of blue chips is that due to their stability they won't appreciate as rapidly as compared to smaller up-and-coming stocks.

Penny Stocks

Penny Stocks are very low priced stocks and are very risky. They are usually issued by companies without a long term record of stability or profitability.

The appeal of penny stock is their low price. Though the odds are against it, if the company can get into a growth trend the share price can jump very rapidly. They are usually favored by the speculative investor.

Income Stocks

Income Stocks are stock that normally pay higher than average dividends. They are well established companies like utilities or telephone companies. Income stocks are popular with the investor who wants to own the stock for a long time and collect the dividends and who is not so interested in a gain in share price.

Value Stocks

Sometimes a company's earnings and growth potential indicate that it's share price should be higher than it is currently trading at. These stock are said to be Value Stocks. For the most part, the market and investors have ignored them. The investor who buys a value stock hopes that the market will soon realize what a bargain it is and begin to buy. This would drive up the share price.

Defensive Stocks

Defensive Stocks are issued by companies in industries that have demonstrated good performance in bad markets. Food and utility companies are defensive stocks.

Market Timing

One of the most well known market quotes is: "Buy Low - Sell High". To be consistently successful in the stock market one needs strategy, discipline, knowledge, and tools. We need to understand our strategy and stick with it. This will prevent us from being distracted by emotion, panic, or greed.

One of the most prominent investing strategies used by "investment pros" is Market Timing. This is the attempt to predict future prices from past market performance. Forecasting stock prices has been a problem for as long as people have been trading stocks. The time to buy or sell a stock is based on a number of economic indicators derived from company analysis, stock charts, and various complex mathematical and computer based algorithms.

One example of market timing signals are those available from http://www.stock4today.com/.

Risks

There are numerous risks involved in investing in the stock market. Knowing that these risks exist should be one of the things an investor is constantly aware of. The money you invest in the stock market is not guaranteed. For instance, you might buy a stock expecting a certain dividend or rate of share price increase. If the company experiences financial problems it may not live up to your dividend or price growth expectations. If the company goes out of business you will probably lose everything you invested in it. Due to the uncertainty of the outcome, you bear a certain amount of risk when you purchase a stock.

Stocks differ in the amount of risks they present. For instance, Internet stocks have demonstrated themselves to be much more risky than utility stocks.

One risk is the stocks reaction to news items about the company. Depending on how the investors interpret the new item, they may be influenced to buy or sell the stock. If enough of these investors begin to buy or sell at the same time it will cause the price to rise or fall.

One effective strategy to cope with risk is diversification. This means spreading out your investments over several stocks in different market sectors. Remember the saying: "Don't put all your eggs in the same basket".

As investors we need to find our "Risk Tolerance". Risk tolerance is our emotional and financial ability to ride out a decline in the market without panicking and selling at a loss. When we define that point we make sure not to extend our investments beyond it.

Benefits

The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It's true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!

The Internet has make investing in the stock market a possibility for almost everybody. The wealth of online information, articles, and stock quotes gives the average person the same abilities that were once available to only stock brokers. No longer does the investor need to contact a broker for this information or to place orders to buy or sell. We now have almost instant access to our accounts and the ability to place on-line orders in seconds. This new freedom has ushered in new masses of hopeful investors. Still this in not a random process of buying and selling stock. We need a strategy for selecting a suitable stock as well as timing to buy and sell in order to make a profit.

Day Trading

Day Trading is the attempt to buy and sell stock over a very short period of time. The day trader hopes to cash in on the short term fluctuations in a stock's price. It would not be unusual for the day trader to buy and sell the same stock in a matter of a few minutes or to buy and sell the same stock several times a day.

Day traders sit in front of computer monitors all day looking for short term movement in a stock. They then attempt to get in on the movement before it reverses. The real day trader does not hold a stock overnight due to the risk of some event or news item triggering the stock to reverse direction. It takes intense concentration to monitor the minute by minute movement of several stocks.

Day trading involves a great deal of risk because of the uncertainty of the market behavior over the short term. The slightest economic or political news can cause a stock to fluctuate wildly and result in unexpected losses.

There are a few people who make respectable gains day trading. The people who probably make the most are the self proclaimed "experts" who sell the books or operate the web sites that cater to the day trader. Because of the profits to be made from sales to people who want to get rich quick, they make it seem as attractive as possible. The truth is that in the long run more people lose than gain by day trading. This does not translate into a very good investment.

What is a Stock Split?

A stock split occurs when a corporation decides to issue new stock and distribute it to it's current stockholders. This is a decision made by the company's board of directors.

The most common stock split is a 2 for 1 split. When this happens the stockholder will now own twice as many shares as before the split but at half the price. The total value of your stock does not change. For instance, if you owned 100 shares before the split and the price was $50 a share, after the split you would own 200 shares at $25 a share. After the split the shareholder owns exactly the same percentage of the company as before the split, only the number or shares and share price has changed.

While a 2 for 1 split is the most common, companies also distribute 3 for 1 splits, 3 for 2 splits, 5 for 1 splits, etc.

Why does a Company Split their Stock?

Companies will split their stock when they feel that the share price has grown to the point that it will no longer be considered affordable by many investors. Since most stock transactions are in round lots (lots of 100 shares), the total cost for 100 shares might be out of reach for some investors. Once a stock price hits $100 a share, for instance, evidence shows that many investors consider it to be too expensive. If the price per share were reduced it would be more affordable. The effect of more people buying the shares will hopefully lead to a price gain.

What effect does a Stock Split have on the Share Price?

When a company splits it stock it sends the message that the company has been profitable and it will probably continue to prosper. Companies normally announce their upcoming stock split some time in advance. Many investors and traders search for these companies and consider them prime candidates for a further price increase.

In theory a stock split should have no impact on the value of the stock, it should be a neutral event. The only thing that has changed is the share price and number of shares. When you do the math you still have the same value and the same percentage of ownership in the company. In practice however, companies who split their stock most often see price increase when the split is announced or after the split actually occurs. The company knows this and is eager to see it's stock price increase.

Reverse Split

Sometimes a company will issue a reverse split. When this happens the shareholder will have less shares at a greater price. For example, a typical reverse split is a 1 for 10 split. For example, if a company has been trading at $1 a share and you have 100 shares, after a 1 for 10 split you will have 10 shares at $10 a share. A company might perform a reverse split when their share price has dropped to a very low level and they want to increase the share price to appear more respectable to potential investors. In addition, some exchanges will de-list a stock when the price drops below a certain level for 30 days.

The two most common types of orders that you may place with your broker are Market and Limit. In addition your may enter a Day Order which will remain in effect only for the current day or a Good till Cancelled Order which normally remains in effect for 30 days or until you cancel it. It is recommended that you only enter day orders unless there is some special circumstance that would require you to enter a good till cancelled order

Market Order

A Market Order will be executed automatically at the current bid or ask price. If you enter a market buy order it will be executed at the current Ask Price when your order reaches the floor of the trading exchange. If you enter a market sell order it will be executed at the current Bid Price when your order reaches the floor of the trading exchange. A Market Order almost always insures that your order will be executed although the actual price at which your order is filled may be better or worse than you expected.

Limit Order

Another type order allows you to specify the most you are willing to pay when buying or the least you are willing to accept when selling. This is known as a Limit Order. For instance if you enter a limit buy order at 53.21 you will only pay 53.21 per share (or less) for your stock. If you enter a market sell order at 54.16 you will only sell for 54.16 (or more) for your stock. Because of the potential price differential with the bid or ask price, you order may not be executed.

When entering a limit order it is suggested that you specify a price somewhere halfway between the bid and ask price. When closing out a position because you think the price is ready to reverse, always enter a market order.

Stop Loss Order

A Stop Loss Order allows you to specify a Trigger Price for a stock you own. Once the stock drops to (or below) your Trigger Price, the order becomes a Market Order and will be sold at the best price available (even if the stock price turns back up). This is a way to protect yourself from a sudden decline in price for a stock you own or to protect your potential profit if the price has gone up since you bought it. Many investors use the Stop Loss Order as insurance against an unexpected price decline.

About Bid and Ask Prices

The Bid Price is the highest price anyone is willing to pay for a particular stock at the moment. The Ask Price is the lowest price anyone is willing to sell a particular stock for at the moment.

If you enter a Market Order to buy a stock you will pay the Ask Price when your order reaches the trading floor. This could be a good bit different from the Ask Price when you placed the order. On a fast moving, thinly traded, or volatile stock these prices can and will change very rapidly. You could pay substantially more than you expected! If this is a major concern, you may want to place a Limit Order instead.

We'll give you the short answer first!

Stocks go up because more people want to buy than sell. When this happens they begin to bid higher prices than the stock has been currently trading. On the other side of the same coin, stocks go down because more people want to sell than buy. In order to quickly sell their shares, they are willing to accept a lower price.

Having said this, we'll take a look at the various reasons that cause traders to want to buy or sell a stock.

It is possible to look at the financial statements of a company and determine what the company is worth. Investors who take this approach are said to examine the company's "fundamentals". They attempt to find an undervalued stock - one that is trading below it's "book value". They feel that sooner or later other traders will realize that the company is worth more than the current price and begin bidding it up.

Another investment psychology it called the "technical approach". This is when traders closely examine charts of the stock's past performance looking for trends that they feel will be repeated in the near future. These traders also look at what is happening in the market as a whole trying to anticipate the effect it will have on an individual stock.

Sometimes companies trade at half their "book value" while at other times they may trade at double, triple, or even higher. When this happens it can create some sudden and large price swings. This volatility is what makes it possible to make large profits in the market. It is also responsible for huge losses.

The stock market is essentially a giant auction where ownership of large companies is for sale. If some investors think that a particular company will be a good investment, they are willing to bid the price up. By the same token, when many investors want to sell a stock at the same time the supply will exceed the demand and the price will drop.

Watching the stock market can be likened to watching a ball bounce. It goes up and comes down and then goes right back up. This can be extremely frustrating for many investors who want it to go up in a steady pattern. It is this volatility in the market as a whole and in the individual stocks that the experienced trader profits from. In the absence of a lot of experience, the individual investor needs a proven source of information and direction. The daily stock market recommendations from http://www.stock4today.com/ can supply this need.

Many investors (as opposed to traders) have a "buy and hold" philosophy. This would work well in a constantly rising market. Unfortunately, the stock market does not go up in a straight line. There are ups and downs that frustrate this type of investor. Today many investors have become "traders" who buy and sell on the fluctuations of the market and the individual stocks. These traders make money in any market - up or down!

Another well known investment site http://www.fool.com/ lists the following reasons for stocks going up and down:

Why Stocks Go Up

• growing sales and profits
• a great new president hired to run the company
• an exciting new product or service is introduced
• more exciting new products or services are expected
• the company lands a big new contract
• a great review of a new product in the press or on TV
• the company is going to split its stock
• scientists discover the product is good for something else
• some famous investor is buying shares
• lots of people are buying shares
• an analyst upgrades the company, changing her recommendation from, for instance, "buy" to "strong buy"
• other stocks in the same industry go up
• a competitor's factory burns down
• the company wins a lawsuit
• more people are buying the product or service
• the company expands globally and starts selling in other countries
• the industry is "hot" -- people expect big things for good reasons
• the industry is "hot" -- people don't understand much about it, but they're buying anyway
• the company is bought by another company
• the company might be bought by another company
• the company is going to spin-off part of itself as a new company
• rumors
• for no reason at all

Why Stocks Go Down

• profits slipping, sales slipping
• top executives leave the company
• a famous investor sells shares of the company
• an analyst downgrades his recommendation of the stock, maybe from "buy" to "hold"
• the company loses a major customer
• lots of people are selling shares
• a factory burns down
• other stocks in the same industry go down
• another company introduces a better product
• there's a supply shortage, so not enough of the product can be made
• a big lawsuit is filed against the company
• scientists discover the product is not safe
• fewer people are buying the product
• the industry used to be "hot," but now another industry is more popular
• some new law might hurt sales or profits
• a powerful company enters the business
• rumors
• no reason at all