Ciber Netherlands Blog

Let me share with you a trading secret that can make you rich. This secret has been used for decades by some of the top traders. You might wonder why these traders would be so secretive, and not share their great knowledge with all of us. Well, to be honest with you, they did share it with us. Many times they spoke about and wrote about this trading rule.

W. D. Gann said “You can make a fortune by following this one rule alone.”

Burton Pugh called it “one of the most valuable of market habits and the trader should follow and profit by this most dependable of all market laws.”

So, why doesn’t everybody listen to these great sages of Wall Street? To tell you the truth I don’t know, maybe it’s because this trading rule is so simple that it gets overlooked. I find that people often think that if something is this simple it couldn’t possibly work. Well, I have some advice for them. Don’t over complicate things, “KISS” (Keep It Simple Silly).

OK, so you want to know what this great Stock Market secret is? It’s the 50% Rule. Simply put, a stock often retraces 50% of the previous price movement. This rule works in an upward trending as well as a downward trending market.

Let’s imagine that ABC stock started its most recent run at $10 and advanced to $20 before it began to pull back. A buy order would be put at $15 (50% of the previous move). A stop could then be placed just below the 62% retracement. Many of you will recognize these as Fibonacci Retracement Lines, and you would be correct. Traders were using the 50% rule before anybody ever associated it with Fibonacci. I’m not telling you that price will always retrace back to the 50% mark. No, sometimes price might not make it all the way to the 50% mark, and sometimes it might move past it, somewhere between 50% and 62%. You get the picture.

This rule works at amazing regularity. Just remember, that if a stock is in a trading range, or currently in the process of forming a chart pattern, the 50% rule will not apply.

Most charting services have a Fibonacci Retracement Tool that draws the 38%, 50%, and 62% lines, making it very easy for you to draw the lines without having to do any figuring. Keep the 50% rule in mind. Check for it on historical charts. You will be amazed how often it occurs and how well it works.

No Entry Expenses

Online stock market trading or virtual trading is the simplest and easiest way to make money. You simply have to open an account with an online stock broker free of cost. Unlike other businesses, you do not need to invest lots of money to start online trading in stocks. You can start with as little as $3. You have everything to gain, and if unfortunately, you lose, be consoled that the loss is only a fraction of your investment of $3 in the stock market.

Risk free Initiation

The reason for starting with a small investment is that even if you lose your money, you would have gained much in terms of learning the tricks of the trade. Also since there are no major risks involved with such a small investment, you can trade more confidently. Yet, it is important to maintain a cautious approach to deal with the risks and losses.

Step-by-Step Guidance

You can trade in stocks through a stock broker, who with his expertise will guide you regarding your financial decisions. Instead of following his decisions blindly, you should aim at understanding why and how he decided on investing in a particular company. Alternatively, if you are dealing in online stock trading, you can consult your broker’s website and read through the various articles that you find there. This way you will soon be able to grasp the basics of the financial market and understand how research can make a difference to your profit margins.

Stock Trading Tools

Besides providing elementary information and tips to the beginners, your stock broker’s website also provides you with many useful tools for successful trading. Stock brokers, as a rule, employ stock market analysts who continuously research the financial viability and performance of various companies and their stocks so that they are in a better position to design an appropriate investment portfolio for their clients.

You can get access to the detailed examination of the financial performance of the company whose stock you want to trade in—its technical and fundamental analysis, market capital, market capital, performance since its inception, the initial, past and the current market value of the stock, short and long term possibilities, quarterly, half yearly and annual reports, market orders along with all other strong and weak points. You can also get a sector wise report of banks, pharmaceuticals, capital goods, information technology, cement, steel, oil, power, energy and so on. There are reports on national and international markets in context of the stock that you like to trade in. All these details are provided to help you to take enlightened decisions.

Customer Education

You can even learn to analyze the financial environment and the performance of various companies. There are articles and tutorials by experts, which provide you an in-depth understanding of various aspects of stock trading. There are also reports about the gainers and losers in the market on a periodical basis.

Tools for Advanced Traders

You can also use the research tools to scan the stock market for profit opportunities. Once you find the symbol of your stock, you get analytical reports and charts about its past and present performance, which can help you decide its future potential. You can also study the latest business news headlines and quotes updated almost by hour on the financial websites. For example, if NASDAQ announces that it has listed five new exchange traded funds-ETFs-sponsored by Barclays Global Investors, you get a news flash instantly on your computer’s monitor.

You can also use another tool called ETF screener, which lists the top Exchange Traded Funds by, say, four major categories. There are category links to view the top 15 ETFs of each category. All you need to do is to click on the symbol to view a detailed quote or trade the ETF.

Stock market can be highly rewarding if you use the right strategy for trading. Some people are tempted to call the stock trade as a kind of gambling and ascribe success and failure in it to luck. But it is their ignorance that makes them say so. The ones who know it well, having at least an overview of its subtler aspects, know well that it is a kind of science, and not luck, that operates the ups and downs in the stock exchange. The following information would help you to understand the trade and the market, thus allowing you to make wiser decisions:

TERMS USED IN THE TRADE

Stocks

Before talking about anything else, let us know the primary thing. A stock is a group of shares. The reliable companies float shares when they want more money for the investment into their business. When you buy shares, you invest into the company’s business. The company pays you a portion of the profit it makes, proportionate to the number of shares you hold.

Stock Trade

The prices of shares of a company rise and fall depending on their fluctuating demand. This constant change in prices of the shares makes them an ideal candidate for trading.

Stock Broker

The hectic transactions would have been much discouraging, had it not been simplified by the stock brokers. The full service brokers mediate the stock transactions, maintain your financial portfolio and also suggest to you which company to invest in and which one not to invest in.

Online Stock Trading

The advent of the Internet has simplified many aspects of life. The stock market is not totally untouched too. In fact online stock trading is growing very popular nowadays. This is enabled by special websites that connect their clients to stock exchange through the Internet and serve the transactions with software programs. These online brokers charge very low commissions, far lower than the traditional brokers. And you can use it at any time and from any place, provided you have a computer connected with a reliable Internet connection. However, if you go for one, it is strongly advisable that you read the terms and conditions page of the online broker well and decide whether its mode of payment, trading policy and other features suit your need.

TIPS HELPFUL FOR STOCK TRADING

• Do not trade with loan money. Loan will be a pressure on you and will make you prone to make mistakes due to haste.
• Do not make superstitious decisions or ones guided by emotions and sentiments. For, they do not guide the stock prices.
• Invest only as much as you can afford to lose. This will let you play coolly and will thus increase your chances of winning.
• If you are new, trade as part-time. Do not leave your current job. If your job schedule does not allow you some time to go for traditional stock trading, go for the online one. You can do it at any time of the day.
• Read a couple of books from your local library and summon some information from the Internet about the trade before you go for trading.
• Don’t be too greedy. You might lose at places you should have won.
• Keep yourself well aware of the news of the business and other related worlds. Good business magazines would be a great help.
• If you win some money in the trade, do not spend it thriftlessly thinking it is superfluous. Rather, use it for further investments in the trade.
• While you trade, learn from your own wins and losses, and those of others. This hones your trading skills and brings you success in the long run.