Five quick tips and conventional wisdom for newbie traders
Getting started in the stock market can seem incredibly daunting, especially if you’re going with the lone wolf approach. At its core, the stock market is an adversarial system for trading that can eat up newbie traders who don’t keep themselves informed. If you’re just now getting started with trading, follow these conventional bits of wisdom to keep yourself in the black.
Don’t Place Market Orders Before the Opening Bell
With before hours and after-hours trading, it can be tempting to take advantage of these times to get orders in before any news happens that day. That’s probably one of the quickest way’s newbies lose money when trading. The opening bell can see highs and lows in a matter of seconds, so protect yourself from these spikes by using limit orders instead of market orders for opening and closing trades.
Afternoon Trades are Usually the Best Time to Buy
The best time to buy a stock is usually around 1 to 2:30 pm EST. That’s because everyone in the United States is awake, at work, and has digested the day’s early news. Any corporate earnings reports are usually released in the early morning too, so that gives you a better idea of how the stock will be performing that day. Be sure to pay attention to volume spikes around this time to make sure you’re not going to price yourself out of a good trade.
Always Check the Bid and Ask Prices Before Making a Move
The bid and ask price for a stock is a good way to get an overall opinion of demand for a particular stock. Stocks that have a higher bid size than the ask means there’s lots of demand for that stock so that could be a prime buying opportunity. The converse is also true when the ask price is higher than the bid price, suggesting sellers that are eager to offload their goods. That might indicate you should be considering a sell of your own if you’re holding that stock.
Buy Stocks Towards the End of the Month
The best time to buy stocks seems to be around the end of the month. That’s because pension funds and dividend reinvestment tend to come around the 15th each month. From the 18th through the 22nd monthly are the two strongest trading days. September and October tend to see stocks bottoming out, making it a prime buying opportunity. April and early May are when companies are riding high on their end-of-year sales reports, which makes a good opportunity for selling on good news.
Avoid Trading Low-Market Cap Stocks
Even if a financial tool like Finviz is showing a substantial profit from low-market cap stocks if you invest, you should pause to consider the trade. Most low-cap stocks tend to have high percentage spreads between their bid and ask price, meaning you need a significant price increase to turn a profit. These companies also tend to be prone towards financial trouble, which could cause you to lose all of your money. Stick with stocks that have a value of $10 or more and trade in high volumes to avoid getting yourself stuck in a sticky situation you can’t exit with a low-market-cap company.
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