Learn How the Stock Market Works

  • October 3, 2020

Can you learn how the stock market works? It's elusive, sexy, seems accessible to only the elite; the allure is undeniable. If you want to learn how the stock market works, you're not alone.

For novice traders and more experienced ones alike, there's something inherently tempting about a company with a rock bottom stock price. If company ABC is trading at just $0.25 a share, it only needs to go up $0.25 a share to double your initial investment.

Facebook moves more than that every day. And what if ABC turns out to be the next Facebook? Buy now, and you could get uber-rich, right?

Wrong. You need to step away from the computer. Sit on your hands. Do not press buy. Do not even invest $500 if you don't have a clue how the stock market works. 

Learn How the Stock Market Works

  • The ever-elusive stock market works like an auction house where traders buy and sell shares of stocks. For those of you completely green, stocks are only small pieces of ownership of a public company. More often than not, the stock prices reflect opinions. Opinions of what the companies value is, what it "might" be worth down the road, etc. Likewise, traders who think the companies outlook looks promising bid the price up. Contrastingly, those who believe it will do poorly bid the price down. 

Professionals in the trading arena often refer to the markets as being bullish or bearish based on the general price movements being either positive or negative.

And, when analysts throw around the term "bear market" or "bull market," they are describing whether a market is optimistic (rising or likely to increase) or pessimistic (dropping or expected to drop).

In other words, the main difference between bullish and bearish markets is whether confidence is high or low. With confidence comes rising prices, and with pessimism comes falling prices. 

Learn How the Stock Market Works

1. What Do Bullish and Bearish Mean?

When you're learning how the stock market works, you need to know market types.  More specifically, the terms bullish and bearish describe the actual state of the market – if it is gaining value, or in an "uptrend," or losing value in a "downtrend."

You're probably wondering what causes these trends? This may come as a surprise to you (or not), but it's emotions driving the direction of the stock. Yes, emotions.

Predictably, markets and underlying asset prices will generally rise amid positive news and fall when there is bad publicity.

Think about what happened to the share price of Facebook amidst the privacy scandal - it tanked and tanked hard. 

2. Yes, You Can Make Money in Both Types of Markets!

Traders who understand not only the cycles described above but how to navigate them can take advantage of both bullish and bearish markets.

When you can accurately identify the cycles, you can profit. And yes, you can make money during sinking markets. An intelligent trader can make money no matter whether prices are rising or falling. 

Whether you're trading Futures or stocks, you need to learn how the stock market works.

3. Where Is the Stock Market?

Two of the largest exchanges in the world - the New York Stock Exchange (NYSE) and the NASDAQ are both in the United States. Combined, they are both worth a staggering $21 trillion.

With over 2,400 companies listed, you can find the NYSE on Wall Street. Likewise, the Nasdaq with 3,800 companies is in Times Square. Even though each exchange matches buyers with sellers, they both do it differently. 

The NYSE is a true auction house - matching the highest bid with the lowest price. For each stock, a market maker is serving as the in-between to ensure trades go smoothly.

Contrastingly at the Nasdaq, the buyers and sellers trade with a dealer electronically. So who owns the stock market? Or does anyone? 

How Does the Stock Market Work for Beginners?

  • When you're new and just starting to learn how the stock market works, it can be overwhelming. There are a million and one services telling you they have the ticket to immense success. And who doesn't want that? But is that the way to go when learning how to trade? The fact is that 90% of traders fail. And those are the traders that are following the gurus to the letter. So how can you avoid that? By learning for yourself how to trade. Instead of paying someone to follow their trades. It's as simple as that. 

1. A Quick Shout Out to ECNs

Typically up until the 1990s, trading was primarily by institutional investors. However, in the 1990s, we had the introduction of Electronic communication networks or ECNs for short. 

ECNs match prospective buyers and sellers without using a traditional stock exchange. And why is this important?

First and foremost, they make the stock market accessible to retail traders like you and me. Secondly, we don't need to go into the pit. In my opinion, ECNs levelled the playing field by allowing people like you and me to interact electronically.  

On the flip side, they enable large institutional investors anonymity in that they can hide their actions.

2. 300 Million Different Trading Strategies

322,000,000 million; that's the number of results I get when I type trading strategies into Google. As you can see from the list below, it's extensive:   

  • Trading zones
  • Trading on volume
  • Arbitrage trading
  • Utilizing news
  • Trend following strategy
  • RSI, stochastic trading strategy
  • MACD
  • Parabolic SAR moving average

I could have easily shown another dozen or so, but that would only exacerbate one of the main problems confronting traders. There are just too many opportunities present in the market on any given day.

As you study each trading setup, it's important to remember that you must find the one that matches your trading style the most, to have success.

Your job is not to trade everything but only to trade a limited few. I'm entirely convinced it only takes mastery of one trading setup to make consistent profits in the market.

Luckily with Bullish Bears, they show you the strategies and set up's that work. And, in real-time in their chat rooms. 

3. The Overnight Success Myth

If you’re serious about starting to learn how the stock market works, you need to put in time and effort. By practicing diligently and honing your technique–making a living from day trading is within grasp.

Only about 4% of men (women, well, we tend to have a much higher success rate) will generate consistent monthly income, though. And it takes about six months to a year of hard work before you start seeing those consistent profits (which may be minuscule in the first year).

Like life, being consistently profitable in the stock market is not a destination. You don’t become profitable and then get to relax; each trading day demands focus on following your trading plan. As we say at Bullish Bears, plan your trade and trade your plan.

Learn How the Stock Market Works Conclusion

In my opinion, the most important lesson that you can learn from reading this blog is that you will not get rich quickly by trading. Profits can and will come with practice, the right tools, software, and proper ongoing education.

We will show you how to protect yourself from worthless companies like ABC. With over $3,000 worth of free courses and materials, if you want to learn how the stock market works,  the time has never been better to join now. 

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