Part 2 - Stock Market
Trends
Understanding
stock market trends can make your job of earning money in the
market much simpler. In contrast, if you know little or
nothing about these trends can cause serious loss.
Bulls And
Bears
As you dig deeper
into the market and learn more about the way it functions, you
will begin to hear certain terms about marketing trends that
seem to be repeated over and over again. Market trends
are variable and volatile, both on a daily basis and over
extended periods of time. In the past, for example, the
United States has had devastating stock market crashes, but due
to the freedom of a capitalist society, the American economy
has always eventually rebound.
What does it mean
for the market or a particular stock to rebound? Assuming
that the value of a company or its stock has plummeted to a
level that seem unrecoverable, leaving it practically
worthless, it may feel as though that company is in danger of
bankruptcy and falling off the scope of the free trade markets
altogether. All of a sudden, however, the founder of that
company may introduce a new product over which consumers go
wild. Everyone wants one, and this product may be in
short supply upon its introduction, causing a race to the
department store shelves.
When such a move
occurs, the law of supply and demand will take over, making the
company valuable once again. The stock price for that
company’s shares will recover, and the resulting gain in value
would be considered a rebound – a return to the original status
(or better) prior to the devastating loss.
The market trends
either up or down, and there are specific references to strong
changes in the market values that you may frequently
hear. If several different areas of the market are in a
steep downward slide, with values dropping rapidly (perhaps
even ten or twenty percent in a few days), it is referred to as
a bear market. You can remember this reference as though
you are in the extremely dangerous position of being chased by
a bear – if you are in possession of several stocks or other
commodities worth a goodly sum, you have a serious chance of
losing a great deal of value that could translate to a loss of
net worth should you choose to sell, and it can be a similar,
very dangerous situation.
Your best bet in
these cases is to either sell before prices drop below your
original purchase price or to hold onto the shares until the
market rebounds. However, when the bear market reaches a
low point, it can be an ideal time to get into the game, as it
is rare for prices to drop below this point. Then, if you
patiently await the recovery or rebound of the market, you can
make a great deal of money from a bear market. These
options will be discussed in more depth in later
chapters.
At the same time,
a bull market is a strong general upward trend for many
stocks. You might compare this to the running of the
bulls in Pamplona, Spain, every year. You are safer if
you are indoors when the running occurs, and by the same token,
if you own stock during a bull market, you are in a prime
position to increase your net worth and sell your shares,
making a great deal of money. This is another idea will
be further explored in greater detail further on in this
ebook.
In the next
section we'll be
discussing alittle about "An introduction to forex".
Click here to read part
3 - An introduction to forex.
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