Everybody wants to make a profit and afraid of losing their money. But if you have thought to be a businessman you need to have the ability to accept the loss as losing money is an unavoidable part of the business. If you are not able to deal with the aftereffect of loss then you shouldn’t think to invest. However, if you have decided to invest in the stock exchange, then you have to understand the basics of the stock market and this article will help you to know some basics of the stock market.
What is the stock market?
The stock market is the place where shares of publicly traded companies are bought and sold. Some people consider the stock market as gambling which is not correct. In gambling when you win you get the entire money with some profit, but here when you lose you lose everything. In the stock market, the entire loss of money rarely happens here.
Rise and fall in stock prices
Many factors are responsible for the rise or fall in the stock market. The media, natural disasters, political and social turmoil, supply and demand are some elements of this changing price in the stock market. All these factors have a great impact on the stock market. When the number of sellers is greater than the number of buyers, the price of stock fall. In a contrasting way, when the number of buyers is more than the sellers, stock prices rise. Read more about the stock market and develop your knowledge so that you can understand the trading process much better.
The stock market is unpredictable
The prices of stocks may go on rising for several years, yet it is difficult for the traders to predict when it may fall as no one can predict a stock market. Being influenced by this rising price, some investors may risk their money, when others may feel indecisive regarding their next steps. An investor should consider three issues in this regard and they are: understanding the valued point of the stock price, triggering event, and the human decision-making process.
Stock valuation and triggering event
The investors compare the actual price of a stock to its fair value before buying and selling a stock. This makes investors understand if the stock is overvalued or not. For example, if a stock’s fair value is $45 but it trading at $40 it will be considered worth purchasing. Again, if a stock’s fair value is $35 while its trading value is $40 then it is overvalued. Know the time when trend reversal will occur.
The human decision process
When you make an investment decision as you buy or sell from another person and therefore, you need to make a good decision. But it is not possible to know everything you need to know. In this situation, we will make a sub per decision at times.
The best time to buy and sell
It is most important for the investors to decide when they should buy and when they should sell. As an investor, you should buy when the price will fall and sell when the price will rise. You can expect a high return in this way. But, don’t decide anything in rush or it will be the reason for your loss.
A stock market is a place with a lot of complications which often makes the novice investor confused and they feel the place is not suitable for them. So, you need to learn more about the stock market and all its system. As stock prices are not stable and unpredictable, you need to take time to understand the market well. You should not risk your money until you are well aware of this marketplace. A guideline from the experienced investor may be helpful to you in this regard.