Buying stocks online is one of the methods you can use if you have decided to invest in the stock market. You have been talking to your friend about the stock market, or you have become concerned about the low rates of return you have been getting from your money market funds. You are trying to decide if you should invest in the stock market, but the current uncertainty concerns you. You are aware that you need to do something to increase the amount of return that you are getting on your investment since inflation is eroding away your portfolio.

If you are thinking of investing in the stock market, then the first thing you should consider is if the money you are investing is going to be needed for something in the short term i.e. less than 3 to 5 years. If this is the case, then you should probably not get involved with the stock market with that money. The stock market does have swings upward and downward, and you would hate to be caught in a situation where you needed the money with the stock market in a bearish situation.

If you want to be successful in buying stocks online, then you should be willing to do some research. Many people do lose money in the stock market because they do not use a systematic approach to their investment strategy. They merely grab a tip from a friend that sounds good and go for it. I am under the impression that when you obtain a sure fire tip that is a guarantee, then you should short sell that stock. This means that you sell the stock which you do not own. Then you buy it back later after the stock has gone down. I am not advocating this approach. I am just trying to make a point. Sure fire tips are not for the beginner.

There are some articles on this website that discuss how to get involved in trading stocks, and what the stock market is. Some good articles for the beginner are under the category, Basic Education. I would suggest you review some of those articles for additional information. I do not want to re-hash this information in this article.

When you choose to buy stocks online, the first step is to find an online brokerage firm. There are many good ones available. These online brokerage firms can be located by searching on the internet. Some of the best ones are E*Trade, thinkorswim, and Charles Schwab.

Many of the online brokerage firms have stock training courses that are available for you. They also offer virtual trading opportunities for you to practice with virtual money. You are given a certain amount of trading money and you are able to put in practice the ideas you have learned without having to suffer from losing your own money. This is a good idea for the beginner. There are also forums where you can bounce ideas off of other investors.

One additional tip for you is to set reasonable expectations of the amount of money you think you will make. Those investors who swing for the fence usually strike out. I know because I have done it. Being willing to take a slow, methodical process to your investment strategy may be the best approach for you. After all, if you are just beginning to invest in the stock market the best strategy is merely to obtain a better return than you will obtain from money market returns. The other thing you should be aware of is the stock market does go down. However, it also goes up. If you are risk adverse, there are different investing strategies for you. Many of them are also listed on this site, or you can talk to a broker or financial advisor about what may be best for you.

It is amazing how moving average crossovers (MAC) seem to indicate trends in the stock market. One of the problems with MAC is that it inherently contains a lag factor. By the time you realize that the 20 day average is curving upward, you have missed out on a great opportunity to invest your money. I recently observed this when looking at the historical trending of the S&P 500 for the period of June 21, 2010 to July 12, 2010. On June 21st, the stock market crossed over the 20 day average line on its way down to a new low that had not been seen for some time. On July 6th, it begin a climb upward. Around July 10th, it re-crossed the 20 day average line. During that time it went from 1030 to 1075. That timeframe represented a missed opportunity.

One way around this problem is to trade with multiple moving averages. You will probably want to choose a long-term (50 day) and a short term (20 day) moving average. You should then watch for when these averages begin to move toward each other and crossover. Another good thing to watch for is when the stock price crosses over a moving average line. This is similar to what recently happened with the S&P 500 stock price. This is especially important when the moving average line encounters a support or a resistance point. If the case happens where the average tends to bounce off one of these support or resistance points, it can turn into a strong trend-reversal signal.

One of these crossovers is known as the Golden Cross. This occurs when the 50 day average crosses over the 200 day average. This can represent a major shift from the Bears to the Bulls. The Death Cross is when the 50 day falls across the 200 day average. This is an indication of a bearish sentiment. Moving averages do not work during sideways stock movement. They will do nothing more than give false signals. Moving averages will converge to a single flat line during dead, no price change markets. You will need to watch this scenario and not use them during this action.

Theodore Wong, a professor with Stanford, provided some empirical support for the MAC. In his paper he indicated that an investor should go long if the S&P 500 price is above the 200 day average and sell if it falls below the line. He studied trends dating back to 1871 to develop his theory. One of the underlying basis for Mr. Wong’s theory is the Rational Belief Equilibrium (RBE) which was also developed at Stanford University by Mordecai Kurz. RBE represents a significant advance in the study of asset market behavior. RBE can be used to explain why the stock market tends to move in cycles. The key ingredient in RBE is investors ignorance about the future.

Rather than making the assumption that investors behavior is always right, Mr. Kurz takes the position that investors often make mistakes. In Mr. Kurz’s model, market prices are flat-out wrong from time to time. There are significant world events such as 9/11/2001 or 12/7/1941 which will change the way investors look at the stock market and investing. No one can predict these events, so they cause ripples in the stock market.

RBE helps to explain why cycles occur, because it is a descriptive theory of how markets work that will justify a prescription of what we should do as investors. According to RBE, cycles will emerge whenever the mistakes that investors make become correlated. Bull and bear markets reveal themselves in the form of serial correlation. When conditions in an asset market today can influence likely conditions in the market tomorrow, then knowing something about recent conditions in the market can provide predictive value of what may happen next. Horace “Woody” Brock put it this way. “If it is cold in Kearney, Nebraska today, I can predict with accuracy it might be cold tomorrow. This phenomenon is known as Winter.” Bull and bear markets do have seasons and if an investor is astute enough to decipher them, they stand to be able to make money from their investments.

I would suggest you read the paper which can be found at http://www.capitaladv.com/media/pdfs/Advisor_Perspectives_Article_Sept_2009.pdf. There are also other papers which have been written on RBE. It makes for a fascinating read on stock market cycles and why they behave the way the do.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.

The current sentiment of the media seems to be nothing but doom and gloom. Many of them are worrying about a double dip recession. They feel that we are just beginning to come out of the recession and are still on the precipice. They feel that any slight push or draft will force us back over the edge, into the deep dark hole of another recession. The stock market and its managers seem to be feeding off of this sentiment.

A true contrarian loves this time of negative sentiment. They are actually optimists at heart who see buying opportunities around every negative corner. Jeff Sommer is the author of The Art of Contrarian Trading. This is a blog devoted to contrarian thinking. In his latest article dated July 6, 2010 he discusses the buying opportunity provided by the current media attack.

Mr. Sommers indicates that one article in The Economist shows a shark cutting through the water on its cover page. The caption talks about the hidden danger in today’s market. Mr. Sommer says that the stock markets 15 percent drop in May, 2010 reinforces the reluctance of the average investor to ‘get back into the water’. He goes on to say that this reluctance is a truly great buying chance for the contrarian investor. If they are not already fully invested in the stock market, and making money, they should certainly do so now. His feeling is that the stock market is merely positioning itself for a sustained climb upward.

There are many articles which support this theory by Mr. Sommers. The author of an article on the Equity Clock states that the markets have been oversold and he feels that they are due for a bounce. He does feel however, that this bounce may be short term leading up to the earnings release period.

This attitude can probably be traced to last quarter’s positive earnings release. If the reporting companies can continue to sustain the growth begun in previous quarters, then I feel you will see the private sentiment to begin to improve. Then the market will continue its upward climb to very profitable heights.

Mr. Sommers also indicated that the option trading is pointing to a bullish sentiment. Initial suggestions indicate a buying signal. His advice is to remain defensive in high quality dividend paying stocks.

So I would suggest that your ought to consider yourself as a contrarian. The best time to buy is when everyone else is selling. This is indicated in Its A Wonderful Life when Mr. Potter tries to buy up the town during the great depression. He certainly saw a buying opportunity when it presented itself.

All of the content published on this website is to be used for informational purposes only and without warranty of any kind. The materials and information in this website are not, and should not be construed as an offer to buy or sell any of the securities named in these materials. Trading of securities may not be suitable for all users of this information.