Prosper Newsletter: December 2007 > Stock
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Charting Your Way to Greater Success
It seems that every website, newspaper, or journal has stock market graphs and charts. Stock charts are a great way to monitor the stock market and forecast future prices. Charts can be used to graphically represent the history of a stock, commodity, currency, or other financial device. One reason that charting prices is so useful is that when you look at the stock market in general, it becomes obvious that the market is cyclical (it shows general patterns and trends that tend to repeat themselves over time and over a variety of different types of stocks). Being able to recognize such patterns and combining the charts with other research, such as future products or mergers, you can make better-informed decisions when you buy or sell a stock. Stock charts are available on most financial websites, such as CNNmoney.com and Forbes.com.
As you review charts, you should examine a stock's five to ten year performance. This will grant you a broader picture as to how the stock has performed over time. You should also consider historical events that could have affected the stock, such as the dot-com bubble burst in 2000 that affected the entire market. Then determine the stock's average highs and the lows and draw a straight line through the graph. Is the stock generally increasing or decreasing? Prices will rise and plummet on a daily basis because that is the nature of the market; however, if a stock is generally rising, you should consider investing in it. If it is generally decreasing, find another stock to invest in.
In general, as you analyze charts, you should look for two basic patterns. The first pattern is a signal of when to purchase stock. This occurs when the stock has dipped but has reached a support level. In other words, this is the turning point where investors begin to purchase the stock because it is so inexpensive. Such investors expect that, like most stocks, this one has a history of peaks and valleys and that the stock is about to increase. The support level occurs as more and more investors purchase the stock; therefore, the price of the stock increases. Once you begin to see a support level emerging, that is the signal to purchase stock.
The other pattern indicates that it is time to sell stock. It is called the resistance point. The resistance point occurs when the stock has reached a high price, which has continued to climb for some time and now investors are willing to cash in their stocks. As investors see that there is more of profit to be earned from selling the stock than holding on to it, they will sell it; and the price will begin to decrease. Once a resistance point emerges, you should also sell your stock quickly so that you will gain the highest possible price for it before it plummets.
As you enter the stock market, you should spend time interpreting and scrutinizing graphs and charts to determine which stocks you should purchase. The more educated you are about the history of your stocks, the more likely you are to be successful with your investments. Make a point when setting your new year's resolutions to spend some time to educate yourself on charts and graphs. This will help you make improvement in your stock purchases in the year to come.
Thought I would tell you about a couple of recent trades. I bought ten put contracts and sold them three days later for a gain of $869.95! I also purchased 8 calls. I sold them for a huge gain of $6,769.87!
Garrett C.
It is the end of the year and all is well in the stock market. There have been many chances to make money on the downturn in the stock market during the last few weeks. We have experienced yet another 10% correction due to more subprime worries and losses. More companies have announced their losses or fears, such as Citigroup, Merrill Lynch, and Cisco.
As this is the time of year to start making resolutions, here is a list of possible stock market resolutions to make for the coming year:
- Work hard! Pay close attention to the market. Be an active investor and treat your investing as a business.
- Perform a thorough fundamental analysis of each stock before adding it to a watchlist or buying it.
- Be patient before entering a stock or option trade.
- Make sure there is a good reason to enter a trade.
- Be sure all the indicators are pointing the same direction and that the volume is higher than average. Enter the trade on the appropriate side.
- Do not enter a trade if it just doesn't feel right. (You have been taught well so stick to what you have learned and do not deviate from it).
- Don't get greedy and let your profits turn into losses. When you have a profit, protect it and keep it!
- Make Money!
The Stock coaches at Prosper want you to know that it is a pleasure to work with each student that comes into the program. We appreciate all the hard work you put in to accomplishing your dreams. Have a great holiday season and happy trading!
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