With a market capitalization into the tens of trillions of dollars, the American stock market attracts millions of investors from across the globe. There are some important features to stock market trading.
Major Stock Markets
The major U.S. stock exchanges are the New York Stock Exchange and the Nasdaq. The major stock market indexes are the Dow Jones Industrial Average, S&P 500, the Nasdaq Composite and Nasdaq 100. Most of the stocks used by traders are listed in these indexes.
Trading vs. Investing
Stock traders have a much shorter time horizon than investors. Typically, traders hold positions for no more than a few weeks at a time.
Quite a few stock market traders use momentum strategies. The basic premise is to jump on the bandwagon of price action. Buy if a price has moved sharply upward and sell if it has moved sharply downward.
Counter-trend strategies are sometimes, though not always, diametrically opposite to momentum strategies. The counter-trend trader seeks to buy or sell what he perceives as a price extreme. If his analysis tells him the price of a stock has fallen too far, he’ll consider buying it and if he thinks it’s gone too high, he’ll sell it, either time against the prevailing trend.
Money management is one of the most overlooked facets to successful stock market trading. The primary components of good money management are knowing how much you’re willing to risk on each individual trade, and knowing where you’ll get out if the trade moves against you.