Different Types of Stock Charts

A stock chart is a graphical illustration of stock market data and its qualitative analytical data. They are often used to ease the understanding of large quantities of data and the relationships between them.

There are several types of stock charts that are used to gauge the price movement of the stock over time.Graph-chart-of-stock-market

Line Charts

financial-graph-on-a-computer-monitor-screenA line chart is the simplest type of chart as it represents only the closing prices over a set time frame. A line chart is created by connecting the closing prices for each period over the time frame. When strung together with a line, a line chart reveals the general price movement of a share over a period of time. However, line charts do not provide much insight into intraday price movements such as high, low , or open prices. Line charts usually feature the stock price or trading volume information on the vertical axis and the equivalent time period on the horizontal axis. A line chart is considered to be a useful tool as it highlights only the closing price which is treated as the most important price among the four. Overall, unlike other stock charts, the line chart make sit easier to spot trends because there is less ‘noise’ happening.

Bar Charts

Also known as open-high-low-close (OHLC) charts, bar charts are the most basic tool of technical analysis. Bar charts make use of vertical lines which signify the highest and the lowest price the stock traded at during a day. The horizontal line extending to the left signifies the opening price and the short horizontal one extending to the right signifies the price at which it closed the trading day. The color of the bar is based on the net gain (green) or loss (red) on the closing price. The major advantage of a bar chart compared to line chart is that its more informative and reflects prices and price volatility. When compared to candlestick bars which illustrate emotions, bar charts visualize price range easier.

Candlestick Charts

candlestick-ChartThe candlestick chart resembles a bar chart only that it varies in terms of visual representation. The candlestick offers the same information as a bar chart but in a more advanced and better way. The candlestick comprises of three parts: the body, the upper tail and lower tail. The body comprises of the opening price and closing price for a particular time period. A green body suggests that the closing price was higher than the opening price, which is considered bullish since the net result is price rise. On the other hand , a red candle means that the closing price is lower than the the opening price. The line at the upper end of a candlestick signifies the day;s highest trading price while the line at the lower end of the candlestick signifies the day’s lowest trading price. Generally, a candlestick chart is considered to be better than bar chart as it indicates trend continuation and trend reversal more clearly and more precisely.

Point and figure charts

These charts are not very popular among average investors, but they were widely used by the first technical traders. Point and figure charts reflect price movements without time or volume concerns hence helping to filter out insignificant price movements that can distort a trader’s view of the overall trend. The charts comprise of X’s and O’s which represent net price changes. The X column represents rising prices while the O column represents falling prices. Furthermore, this type of charts also try to eliminate the skewing effect that time has on chart analysis. Unlike other types of stock charts, point and figure charts do not use the time input on a linear basis.

Stock charts are the most fundamental aspect of technical analysis. Therefore, it imperative for stock traders to correctly interpret various types of stock charts.

Hedge Fund Characteristics and Working Principles

Hedge funds are alternative investments made available to special investors like large institutions and individuals with big assets. They use pooled funds which employ different means to earn active returns for investors. These pools of underlying securities offer flexibility in investment. This investment vehicle may be managed aggressively or use leverage and derivatives to generate high returns both in local and foreign markets. Currently, hedge funds are not regulated by United States Securities Exchange.

HEDGE-FUND

This allows hedge funds to invest in a wider pool of securities than mutual funds. They are capable of investing in traditional securities like stock, real estate, bonds, and commodities. They are designed to take advantage of certain market opportunities using differentsophisticated and risky strategies. The law identifies them as private investments with limited partnerships, a limited number of accredited investors and usually requires large sums for an initial investment. Investors are required to keep their funds for at least year after which withdrawals are made quarterly or bi-annually.

Basic Characteristics of Hedge Funds

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Hedge funds are available to qualified investors based on minimum annual income. This is an amount not less than 0.2 million dollars in the last two years or a 1 million dollars net worth. The securities and exchange commission is responsible for establishing whether investors are capable of handling risks.Hedge funds offer a wide range of investment including land, currencies, stocks, real estates, among others. They also use borrowed money to increase returns as leverage. Hedge funds charge both a performance fee and an expense ratio. Fees are provided as 2 and 20 percent for management and a cut for any gains respectively. These flexible and high-return investment vehicles are available to wealthy investors but are very risky.

How They Work

Hedge funds use long to short strategies where investors can buy stock in the former, sell stock with borrowed money and buy later when the price falls in the latter. Most of them invest in derivatives based on buying and selling another security for a given price. They use an investment technique called leverage where borrowed money is used for investment which the aim of increasing returns, but very risky at the same time. Leverage is one way in which hedge funds seek to increase gains and offset losses by hedging investments using complex methods. Some common strategies are convertible, emerging markets, activist, arbitrage, fixed income, equity long-short, options strategy, funds of funds, macro and statistical arbitrage.Word-Hedge-Fund-on-mini-chalkboard

Investors always find it hard to sell their shares since they generate income over a lock-up period. This is different to mutual funds which have a net asset value calculated each day allowing investors to sell shares at any time. The compensation of hedge fund managers also varies from that of mutual funds managers. Hedge fund managers receive a percentage of returns earned from investors and a small management fee usually 1 to 4 percent of the net asset value. This is convenient to investors when faced with poorly performing managers. The level of risk depends on management skills and the strategy adopted by the manager.

In conclusion, hedge funds are open to a limited number of investors. The law demands accreditation of investors with a requirement of minimum annual income. They must have a net worth of 1 million dollars and adequate investment knowledge. There are many strategies for investment, but they are sophisticated and risky in nature. Investors are sometimes faced with challenges but hedge funds but continue to offer an alternative form of investment with long-term returns. They have a future due to minimal regulation, low management fee and a potential for high returns means.

Day Trading Tips and Strategies for Beginners

Day trading is a lucrative game of buying and selling a given financial instrument in just a single day. This act can be done several times within the same day as one tries to take advantage of any opportunities and small price moves. To avoid any disappointments, whether you are new to it or a veteran, it’s important to use a well thought-out method. There are many strategies and tips that you can use in order to achieve best results. This article will cover the day trading tips and strategies that will help you move from being a novice to a pro trader. The list is discussed below.

  1. Solicit For the Best Knowledge

As the saying goes, “knowledge is power.” there is no doubt to this aspect. You need to get vast knowledge about the latest stock market events and news that directly affects stocks. Consider researching about the economic outlook, Fed’s plans for interest rates among other aspects. You can only get reliable information from reliable financial websites and known business newspapers. Ensure your search is regular and prices. This means, you have to make a list of all the stocks you are interested in and then research not only about the general market but also selected companies.

  1. Come Up With a Realistic Budget

Any financial business or game needs planning. Determine the exact amount you caBudgetn comfortably risk per trade and set aside this amount. It’s advisable to keep it between 1% and 2% of your account per trade. Prepare and determine another surplus amount that you are not only willing to use for your trading, but also prepared to lose in case of any eventuality. With this, you will avoid making the mistake of not being able to meet your basic needs just because a trade went sour.

  1. Consider the Time

Time in itself is an investment and day trading will definitely require most of your time during the day. If your time is limited, don’t try this game. Traders that make it in this endeavor usually move (decide) very fast. During trading hours, you have to keenly track the markets and quickly identify any opportunities that arise so you can take advantage of them.

  1. Start Small

All beginners are advised to stick on just one or two stocks to handle per very trading session. This is because, it’s easier to track and identify opportunities when you are handling fewer stocks compared to when the stocks are so many. Remember a journey of a hundred miles starts with just a single step. Don’t be deceived.

  1. Penny Stocks Should Be Avoided

As much as all you need are lower prices and great deals, penny stocks needs to be avoided like plague. This is because, penny stocks are very illiquid and often, the chances of hitting a great jackpot and so bleak.

Penny Stocks

  1. Properly Time Those Trades

Remember, many orders that traders and investors place start to execute in the morning; immediately the market opens. It’s this aspect that contributes to price volatility. A pro can easily recognize patters and make appropriate choices that will earn profits. For a beginner, don’t be in any rush, just take the first 15-20 minutes to study the market very well. Movement during the middle trading hours isn’t as volatile but this trend changes and these movements increase towards the closing time. Many rush hours come with many opportunities but beginners are advised to shy away from them.

  1. Cut Losses with Limit Orders

This is where you make a decision on the exact type of orders that you will use while entering or exiting trades. You can either use a market order (one without price guarantee and is executed based on the best price that is actually available at that time) or a limit order (one without the execution but with a price guarantee). In the later, you are fee to set your preferred buying and selling price.

Stop Loss Order

  1. Be Very Realistic About Profits

It’s good to note that most traders only win about 50% to 60% of all their daily trades. This means that all the strategies you use don’t have to always be profitable. Try to lose less on your losers and make much more on your winners. To achieve this, ensure that any risk on every trade is being limited to a very specific percentage of the amount on your account. Also, this has to be done based on your written down exit and entry methods.

  1. Remain Composed

Stock markets can really test your nerves at time. The bottom line is to always stay cool. Ensure that all the decisions that you are making are being governed only by logic and not any emotions.

  1. Adhere to Your Plan

Though fast movement is key in this game, fast think isn’t mandatory. Develop a reliable trading strategy before you begin. Ensure you also set the discipline that you must hold on your set strategy. Basically, staying focused on strategy is much more important than constantly chasing profits.

Following the above day trading tips will help you grow into a pro trader. You will surely earn great from being a day trader.

What Are Penny Stocks?

A penny stock is a stock that trades at a low price without the major market exchange. Its market capitalization is small. Penny stocks are considered high risk and very speculative. This is due to their high bid-ask spreads, lack of liquidity, limited following, minimal capitalization, and disclosure. Penny stocks usually trade over the counter via pink sheets and OTC Bulletin Board.

Nowadays, penny stocks have evolved from stocks that used to trade for less than a dollar per share. The SEC has changed the definition to comprise all shares which trade below $5.penny-stocks

A majority of penny stocks do not trade on major market exchanges. But, there some big companies which trade below $5 per share on the major market exchanges like Nasdaq. Their size is based on market capitalization. For instance, Curis Inc. (CRIS) is a small biotechnology firm that trades on the Nasdaq. Hence, a penny stock is a small firm with speculative and highly illiquid shares. The firm is prone to fewer regulatory and filing standards. They are also prone to few listing requirements.

Points to Note About Penny Stock

These stocks are best suited for high-risk investors. They have a higher reward and risk. This is because penny stocks are very volatile. The high risk associated with penny stocks require that investors take precautions when investing in penny stocks. For instance, a shareholder should have a stop-loss order that is established before trading. It allows the investor to leave the trade if the market performs negatively.

Despite penny stocks having high rewards, investors should be realistic. An investor should not expect high returns in a week’s time. This is because shares take months or even years to mature.Data-analyzing-in-stock-market

Penny stocks are usually growing firms which lack enough money and resources. They are usually high-risk and the trading volumes are low.

For protection, trade in penny stocks which are listed on the Nasdaq or American Stock Exchange. Your protection will be ensured by the regulations that regulate these exchanges. Do not trade in penny stocks which are not listed. These include stocks listed on the pink sheet system in the OTC market.

Reasons why Penny Stocks are Risky

Lack of information Available to Public

In order to make a sound investment, you need information so as to make an informed decision. Micro-cap companies make information hard to get. Companies listed on the pink sheet system are not required to file with the SEC. They are hence not scrutinized publicly like stocks that file with the SEC.

No minimum standards

Wall-Street-Stock-Brokers-Trading

Stocks on the pink sheets and OTCBB need not fulfill a minimum standard requirement. When stocks fail to maintain themselves in the major exchanges, they move to the smaller exchanges. Minimum standards act as a benchmark for firms and cushion investors.

Lack of history

Micro-cap firms are usually either bankrupt or newly formed. They usually lack track records or have poor ones. Hence, it is hard to determine a stock’s potential.

Liquidity

When a stock is illiquid, you will not be able to sell the stock. You won’t find a buyer to buy the stock and you might have to lower the price to attract buyers.
As an investment, penny stocks are very risky. Hence you need to do a lot of due diligence before investing in them.