Buying and selling stocks has become a popular investment method. Most people consider it an ideal means of securing a passive income. Generally, new traders hope to buy stocks at low prices and profit from the market’s appreciation. But, can the stock market keep going up forever?
The stock market cannot go up forever. The market experiences constant rises and falls due to political influences and societal behaviors. However, for experienced traders, the market’s direction may not matter as, with the right strategy, there are always opportunities for profit in the stock markets.
This article will discuss what causes the stock market to increase and decrease in value. Also, I will discuss a few trading strategies and the tools you need to start investing in the stock market as a beginner.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
What Causes a Stock To Increase in Value?
The movements in the stock market are controlled by:
- Political influences
- Societal behavior
- The company’s performance
Generally, when you notice that a stock is rising, it’s possible to pinpoint why by:
- Checking the news
- Investigating social media
- Researching the organization’s performance. For the most part, stocks will rise when the issuing company makes more money.
During your search, remember that political changes and new behaviors influence the demand for a particular stock. If the market for the stock improves, so does its price.
A Stock Can Rise for Years, but Not Forever
A particular stock can go up in value for decades sometimes. Because the market cannot sustain this movement, there will be recessions. Despite its pullbacks, the stock can still land the investor in the profit.
If you look at a stock’s long-term performance, you may notice that the value has never dropped below its starting price. For example, the Dow index has been rising for over 100 years.
Stocks with similar conditions present investors with an opportunity to buy during a price drop then benefit from the stock’s increase in value, if any.
How To Profit From Movements in the Stock Market?
Investors use the stock market’s direction to make decisions. Both the rise and fall determine the investor’s profit or loss.
Wealth Within notes that it is unlikely for one stock to make you wealthy, although it is possible. Instead, it suggests that you focus on collecting multiple stocks over time. The main goal is to save money over time. Measuring your savings is one of the ways to value your stock portfolio accurately.
Besides, the stock market is sporadic; therefore, a stock is not guaranteed to continue rising. However, contrary to popular notions, you can still profit from the depreciation of the stock market.
Once you have determined the stock market’s direction or trend, you can use its pattern for financial gain.
How To Identify a Trend in the Stock Market?
There are three types of trends that can occur in the stock market:
- Upward trend
- Downtrend
- Sideways trend
When most of the stock exchange prices are going up, this is considered an upward trend. A rising stock market is known as a bullish market. Bull investors will look for opportunities to buy the stock and wait for it to continue to grow.
If the market’s trend continues, investors will make a net profit when selling their stock.
On the other hand, when stock market prices are dropping, this is considered a downtrend. In the stock exchange, this is called a bearish market. Bear traders are those who try to profit from the decreasing price of a stock. This trading method requires you to buy the stock while the price is still low because you expect it to rise over time.
At a minimum, most bear investors hope to break even. In this way, they will not lose money, and their stock portfolio is not negatively affected.
How Can a Trader Use a Sideways Trend?
There is no straightforward method of making a profit in a sideways trend. Notably, experienced stock investors consider this to be the riskiest type of market behavior.
Because you cannot know for sure if the market will increase, decrease or continue as is, you cannot determine the trade’s profitability.
However, there are ways for you to develop personal strategies for trading with this type of trend.
How To Trade With the Trend?
If you’ve identified a long-term trend, it will continue 80-90% of the time. There will be pullbacks in the market, but these are usually temporary unless there is a trend shift.
With this knowledge, you can take advantage of trend reversals as an opportunity to buy or sell a stock. Afterward, you must observe the charts and wait for the stock to continue its trend.
These tips are a general guide to trading with trends. It is better to use this as a starting point to develop your stock market strategy.
What You Need To Have Before Investing in Stocks?
Before you can make profits on the stock market, these are the required tools:
- Starting capital
- Access to company documents. These involve the financials, mission statement, company goals, etc.
- A brokerage account
After researching the stock’s issuer and collecting the funds to purchase a share, you must find a good broker.
How To Choose the Right Stock Broker?
Choose your broker based on your investment strategy. Some brokers may offer better benefits to long-term investors, whereas others provide better security for short-term sellers. Look for these qualities when shopping around for a broker:
- Support. Some brokers offer complementary financial guidance from an advisor.
- Commissions. Brokers charge a fee for every stock that you trade.
- Investigate how the broker handles foreign and domestic stocks.
Once you’re satisfied with your broker, start investing using one of the following trading strategies or create a method that works for you.
3 Investment Strategies for Trading on the Stock Market
Your investment strategy can be bearish or bullish. You can also alternate between the two if desired. Money Rates outlines three profitable trading strategies that you can use on the stock market:
- Invest using the market segments
- Utilizing the industry sector to determine investments
- Investing based on the performance of the stock
How To Invest Using the Market Segment?
You can invest using the market segment by dividing the stock market into segments based on:
- The various company sizes
- Company origins
- Market performance
After identifying commonalities, you can trade the stocks that exist in the segment with the best performance.
How To Use the Industry Sector To Find Investment Opportunities?
The general performance of an industry determines the value of its stock. Suppose the weather adversely affects an industry like tourism. In that case, the value of many stocks in the travel industry will decrease.
By staying up to date with political, economic, and social matters, you can predict when industries will rise or fall. However, your predictions may not always be accurate. Nonetheless, when investing in the market, it’s best to make informed decisions to reduce your financial loss.
Monitor the Performance of a Single Stock To Decide When To Invest
This method involves an investigative approach to the stock’s:
- Price history
- Company details
- Economic climate
- Potential for appreciation
This investment strategy is the riskiest. But many investors have been successful while maintaining a smaller portfolio.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
Despite the risks associated with the stock market, there are more chances for you to make a profit than there are to lose money.
Once you put time into developing your trading strategy, you can gain from your investment. Del The Trader has a video on basic stock concepts and beginner strategies:
For success in the stock market, the first step is confirming the trend. Afterward, you can use this information to decide to buy, sell or hold a stock.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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