Get Started Trading #5
UNDERSTANDING STOCK PRICING
How can you tell when a stock is a good deal? In this fifth article in the Get Started Trading blog series, we will help you answer that exact question.
There are four primary things to look at when assessing if a stock is a good deal or not. Those are:
- Price quotes
- Stock price chart
- Stock analysis
- Outside sources
First, we will take a quick glance at price quotes. Price quotes tell the current price of the stock. These numbers can change dramatically and as quickly as multiple times per minute. These prices involve both the Bid and the Ask price.
The Bid is the price that the seller is selling the stock for. The Ask is the price the buyer is buying at. Usually, there’s a gap in between those two numbers called the spread. The spread is the amount of money the Market Maker keeps from any trading transactions. Sometimes the spread is only a penny per stock and sometimes it’s more.
In the chart above, the Bid and Ask prices are clearly defined. Also identified above are highest and lowest prices of the stock for that day, the volume of trades, the previous day’s closing number and the green indication of increase in stock value as compared to the previous day. If the stock had gone down in value, the green numbers would instead be red.
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One of the most critical tools used in trading is the stock price chart.
A stock price chart is created automatically by computer software and shows the historical pricing and volume information for any stock. You will learn more about its usage later on.
Now that we have lightly covered both the price quote and the stock price chart, the next indicator for deciding the worthiness of a company’s stock for trading is your analysis of that company or stock.
There are two types of analysis that you, the trader, can use to determine if you want to buy or sell a stock or not. These types are Fundamental Analysis and Technical Analysis.
Fundamental analysis is used primarily by long term traders and it is based on analyzing the underlying strength of a company using its reported financial data. We at TradeSmart University do not typically use this.
Technical analysis is used by short term traders and is based on the behaviors of the people trading the stocks. Technical analysis uses the stock price chart or graph to determine the behaviors of the people trading the stock. This also also allows us to pattern the behavior of the stock and forecast futures moves . People tend to be predictable and their actions in the stock market follow suit. This is why technical analysis works so efficiently.
Learning to trade in the stock market and knowing which companies to trade are skills that develop from your own ability to analyze the market.
Your own personal analysis will actually become your best indicator for forecasting the direction of your stocks.
Now that you are understanding more about trading in the stock market, you are probably also understanding that you also have more to learn. The great news is that we have all the info you need.
Whether you’re just starting in the stock market or already a professional trader, TradeSmart University is for you. Training is conducted in a light, fun environment where seemingly complex topics are broken down in a way that is easy to understand and relatable.
Continue to follow this Get Started Trading blog series for more of the basics and share it with your friends! Remember, the richer your friends become, the better your birthday gifts will be. Sharing is caring (about your birthday)!