How Do Stocks Work?

Today many people just jump into the stock market by seeing other successful people investing in it and earning huge from it. You need to know that it requires a deep study in market analysis and different ideas behind it. You just can’t enter into it blindly. You need to have some basic knowledge as how things work in it. There are people who still do not know – how do stocks work or how to read stocks or how stocks work. Well, this article can help you in many ways then.

How do stocks work or how stock work?

Stock market is not that complex as it seems to be. A single share of stock will represent a partial ownership of a company that issues it. Generally there are 2 types of stocks which are:

  • Preferred stocks
  • Common stocks

how to read stocks

Both of them different properties and have different benefits. When compared to common stockholders, the preferred stockholders get more benefits. There are even 2 values associated to stocks which are as follows:

  • Par value
  • Market value

The par value is nothing but the price of a stock which is set by a company and the market value relates to the stock price that varies depending upon the market conditions. For instance, consider a piece of share whose value is $1 but the current market value might be $100. This is just an example and there are cases when you buy a share for $100 and the market value turns out to be $1. Everything depends on the market value. Based on the market conditions, one can either buy a share or sell a share. Once you understand and get a clear idea about how the stock works, you can make wise decisions and earn huge money. Generally stock is purchased and sold at stock exchanges and has many stockbrokers who are licensed. A stock broker will execute the transaction for you only if you permit which means that you have a complete control over your shares. A broker will earn commission per transaction that he or she makes.

How to read stocks?

If you know to read the charts down, then you will be able to make wise decisions. If you know to use the stock tools properly, then you can use the trading techniques smoothly. The market trend will either go up or go down, so you need to be updated always in that domain. The following are the various logics with which you can learn to read the stock charts:

  • The first thing to look carefully in the chart is for the stock price trend. They last for six months and with this category you will know about the correct market trends.
  • Stock market values also remain constant apart from going up and down. The time periods were the stock remains constant is called as “consolidation”. In this, you will not be able to see any kind of trend.
  • There are 2 spikes or arrows which denotes the upward and the downward changes in stock values.
  • Apart from the price of the stock, the next important factor is none other than “time”. The MA (Moving Averages) will help you to know about the current trend in the market. In stock chart, the time is generally measured with the number of days. For instance, 30 days MA, 60 days MA and if the 30 days MA shoots more than the 60 days MA, then it means that the stock values are going up else going down.

The above things can help you in lot of ways and you need to know that you need to sell your shares only when the price goes up so that you can gain good profit.

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