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Stock Market Trading Tips

As an equity trader there are many strategies that you can employ. The strategy that you employ largely depends upon what is your ultimate goal. In this article we will discuss some trading strategies, discuss the ways you hedge and also try and understand some technical indicators of stocks.

These are some of the basics of Stock trading . Apart from these, it is very important that you have sound knowledge of the macro environment and keep an eye on economic indicators that can have an impact on the market.

Let us first begin with the trading strategies you as a trader can employ. As a Stock trader, you have two options when it comes to trading in securities, you can either go long or short. Going long on a stock means that you buy a stock at price x and expect it to appreciate to a certain level at which point you may consider selling. Nothing very complicated here.

Going short on a stock is however a completely different case. Let us just first understand what going short on a stock means. When you go long on a stock, you buy it and wait for price to appreciate, however, when you short a stock, you borrow a stock, this is very important you borrow and not buy, sell it in the market at price x. Now you wait for the price to fall to a certain price and when it does you buy back the stock and return it to the owner from whom you borrowed it. The profit in this trade being the difference between the price you sold the borrowed stock at and price at which you bought it back.

So when do you go long and when do you go short on a stock? You go long on a stock when you think that the stock is likely to appreciate from its current price level. Here you have two ways of finding out if a stock is undervalued or is likely to go up. The first way is to conduct a fundamental analysis. The second way is to conduct a technical analysis.

You go short on a stock when you think that the stock is overvalued and is likely to fall in the near future. Once you have identified such a stock, you can borrow the stock from your broker. Generally, he will charge you some interest for the period you borrow the stock. Therefore, it is very important that you short only those stocks that you are convinced will drop in the near future because holding them for a long time will increase your costs, which may not be ideal since a lot of time you will be trading on tight margin. Once you have borrowed a stock, you sell it in the market and wait for the price to fall. Once the price falls to the anticipated level, you buy back the stock and return to the owner. Short selling is, however, a very risky strategy and should only be implemented if you are convinced that the price of a stock will fall. You can also start your stock investments in penny stocks to better understand the market.

As a trader, you can sometime even go long and short on the same stock. This is great way to hedge your bet and many traders use this technique. You can also hedge using options.