October 9, 2009
Identifying Potential Trades
In the world of finance, equity trading means buying and selling stock shares of different companies. The buying and selling of these publicly traded stocks and shares involves major stock exchanges, like the New York Stock exchange. These stock exchanges are like auction markets for stock trades. There are also over-the-counter markets (OTC) where stocks and shares of smaller companies are traded.
The owner of the shares can himself indulge into equity trading or can appoint a middle-man or agent to do so on his behalf. Agents are paid commission for their services. Big stock exchanges have authorized people called market makers who help to limit the price fluctuations and variations by trading a particular company’s stocks on their own behalf and also for their clients.
In equity trading, an individual or any agency involved, should have appropriate and adequate information on how to identify a market to trade in, the amount equity that can be risked, when is the right time to trade, to identify the right time to exit the market, the appropriate time to take the profits, etc.
In equity trading in order to identify potential trades, one should look for shares which have substantial volume and liquidity. In equity trading, the initial profit aspirations should be kept modest. A basic and well thought after strategy about trading in the preferred markets would be helpful before one indulges in equity trading. A strategy that talks of minimizing risks and maximizing profits would help in successful equity trading.
Time is another important factor in equity trading. A strategy may not always hold good as the stock markets don’t always act the way they should. It would be a better and smarter option to exit the market instead of loosing it all. If an individual enters the stock market at the right time, the market is sure to move in his or her favor quickly.
On a short term basis, the equity trade should be done in such a way that it allows earning quick profits. Once some amount of profit is earned, some significant risk can be taken in equity trading.
The stock markets change their trends everyday. The trend of the market for the particular day should be followed to gain profits and to minimize the risks. The trend of the market should be confirmed by the performance of the major indexes. Price patterns on daily charts may also be helpful in successful equity trading.
Trade should be avoided in the first hour after the market has opened as it is an amateur hour. The market usually changes its direction after this period. Variations and fluctuations of the market should always be kept in mind before trading. Adjustments of positions with the fluctuations and volatility in the market are important. As the volatility increases, the position size should be lowered, and as it decreases, the position size should be raised.
There are no sure short ways to identify potential trades which are 100% profitable. No strategy is perfect. A strategy could prove profitable in the long run if the odds posed by the market are made favorable.