To be a successful investor, it is necessary to have a fundamental understanding of the philosophy that drives the stock market. The mass psychology of human nature is the biggest single factor you must comprehend if you expect to trade profitably on a consistent basis. This emotional and psychological ingredient has absolutely nothing to do with the state of the economy, but it does have an overwhelming affect on the movement of the market.

The first unwritten rule is that rumors are the prime movers of the stock market. It’s amazing how quickly speculation of upcoming events can change the character of the current trend. In recent weeks, just the mention of inflation causes investors to rush for the exits in order to dump their holdings. This type of activity will often precipitate a general market decline long before the economy actually changes into that state or condition. The market anticipates the movement of the economy and shows us in advance what we can expect with regard to corporate health, unemployment, interest rates and other financial trends. It is also said that a crash in the market is foretold by events that are mostly psychological, not economic.

When investors and analysts begin to discuss bearish trends, the market generally reacts negatively because the public believes it is destined for a downturn. In contrast, when a major financial report is rumored as favorable, the market erupts far in advance of the actual announcement.

The most important underlying factor is the power of human nature on the movement of stocks and other investment vehicles. When you understand the changes produced by emotional factors, you can begin to discern the broader, more technical movements in the market. The key is to avoid the impulse to buy at the height of the rally just because the market is up and everyone is talking about their successes. Learn to trade on your own terms, not the market’s.

To be a successful investor, it is necessary to have a fundamental understanding of the philosophy that drives the stock market. The mass psychology of human nature is the biggest single factor you must comprehend if you expect to trade profitably on a consistent basis. This emotional and psychological ingredient has absolutely nothing to do with the state of the economy, but it does have an overwhelming affect on the movement of the market.

The first unwritten rule is that rumors are the prime movers of the stock market. It’s amazing how quickly speculation of upcoming events can change the character of the current trend. In recent weeks, just the mention of inflation causes investors to rush for the exits in order to dump their holdings. This type of activity will often precipitate a general market decline long before the economy actually changes into that state or condition. The market anticipates the movement of the economy and shows us in advance what we can expect with regard to corporate health, unemployment, interest rates and other financial trends. It is also said that a crash in the market is foretold by events that are mostly psychological, not economic.

When investors and analysts begin to discuss bearish trends, the market generally reacts negatively because the public believes it is destined for a downturn. In contrast, when a major financial report is rumored as favorable, the market erupts far in advance of the actual announcement.

The most important underlying factor is the power of human nature on the movement of stocks and other investment vehicles. When you understand the changes produced by emotional factors, you can begin to discern the broader, more technical movements in the market. The key is to avoid the impulse to buy at the height of the rally just because the market is up and everyone is talking about their successes. Learn to trade on your own terms, not the market’s.

Technical analysis is a method of stock market research using indicators, charts, and computer programs to track price trends of stocks, bonds, commodities, and market indexes. A technician understands the fundamental values of securities but focuses on the historical behavior of the market, industry groups and individual stocks. The goal is to use their price movements, trends, and patterns to forecast future direction and changes in character. Most of this analysis is based on the fact that the values of stocks reflect what people think they are worth, not what they are really worth.

Technical Indicators are used to generate buy or sell signals when specific buy or sell parameters are met. Cycle analysis; historically repetitive rhythms in price action, can also be helpful in initiating technical trades. The stock market historically moves in identifiable cycles. To be a successful investor, you must be able to determine the current phase of activity. Historical bottoms or cyclic lows are the most common signals that analysts attempt to uncover. These downside support areas are more reliable and take longer to develop than the cyclic highs. Using a long-term, monthly chart of the DOW, it is relatively easy to spot the four-year rhythm. The most recent bottoms occurred in 1990, 1994 & 1998.

In any type of long-term technical analysis, it is important to understand that, market cycles usually precede economic cycles. The many facets of our economy that determine the overall financial health of the nation are anticipated by the emotion of the market. Any study that compares key historical events with the movement of a major index will demonstrate how war, recession, or a presidential election can influence the current cycle.

It is important to become familiar with the common investment indicators used to determine the overall movement of the market and apply this knowledge as a practical part of your trading strategy. Once you understand the basic terms, try to start out with common indicators like stochastics, moving averages and relative strength. There are hundreds of other systems and formulas but these have been around for years and they work very well for beginners. After you are comfortable with your new tools, practice trading with the indicators you are using until your portfolio is profitable on a regular basis.

Technical analysis is a method of stock market research using indicators, charts, and computer programs to track price trends of stocks, bonds, commodities, and market indexes. A technician understands the fundamental values of securities but focuses on the historical behavior of the market, industry groups and individual stocks. The goal is to use their price movements, trends, and patterns to forecast future direction and changes in character. Most of this analysis is based on the fact that the values of stocks reflect what people think they are worth, not what they are really worth.

Technical Indicators are used to generate buy or sell signals when specific buy or sell parameters are met. Cycle analysis; historically repetitive rhythms in price action, can also be helpful in initiating technical trades. The stock market historically moves in identifiable cycles. To be a successful investor, you must be able to determine the current phase of activity. Historical bottoms or cyclic lows are the most common signals that analysts attempt to uncover. These downside support areas are more reliable and take longer to develop than the cyclic highs. Using a long-term, monthly chart of the DOW, it is relatively easy to spot the four-year rhythm. The most recent bottoms occurred in 1990, 1994 & 1998.

In any type of long-term technical analysis, it is important to understand that, market cycles usually precede economic cycles. The many facets of our economy that determine the overall financial health of the nation are anticipated by the emotion of the market. Any study that compares key historical events with the movement of a major index will demonstrate how war, recession, or a presidential election can influence the current cycle.

It is important to become familiar with the common investment indicators used to determine the overall movement of the market and apply this knowledge as a practical part of your trading strategy. Once you understand the basic terms, try to start out with common indicators like stochastics, moving averages and relative strength. There are hundreds of other systems and formulas but these have been around for years and they work very well for beginners. After you are comfortable with your new tools, practice trading with the indicators you are using until your portfolio is profitable on a regular basis.

Index ETF’s

A statistical indicator providing a representation of the valueof the securities which constitute it. Indices often serve asbarometers for a given market or industry and benchmarksagainst which financial or economic performance is measured.
Exchange Traded Fund. A fund that tracks an index, but can be traded like a stock. ETFs always bundle together thesecurities that are in an index; they never track actively managed mutual fund portfolios (because most activelymanaged funds only disclose their holdings a few times a year, so the ETF would not know when to adjust its holdings most of the time). Investors can do just about anything with an ETF that they can do with a normal stock, such as short selling. Because ETFs are traded on stock exchanges, they can be bought and sold at any time during the day (unlike most mutual funds). Their price willfluctuate from moment to moment, just like any other stock’s price, and an investor will need a broker in order topurchase them, which means that he/she will have to pay acommission. On the plus side, ETFs are more tax-efficientthan normal mutual funds, and since they track indexes they have very low operating and transaction costsassociated with them. There are no sales loads orinvestment minimums required to purchase an ETF. The first ETF created was the Standard and Poor’s DepositReceipt (SPDR, pronounced “Spider”) in 1993. SPDRs gave investors an easy way to track the S&P 500 without buying an index fund, and they soon become quite popular.