Success Trading: More Basic Terminology for New Traders

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Author: Chuck Cox

Article source: http://www.clearclicks.com/. Used with author's permission.

One important aspect of trading the markets is to understand how to feel it's overall pulse. In the stock market, this is measured by measuring the movements of selected stocks across various sectors to let us know how the market is doing in general. A gentleman by the name of Dow came up with this concept and today we still use his Dow Index for the purpose of measuring the market's pulse. There are also several others out there, but another popular index of mostly technical stocks is the NASDAQ.

Bull Market - This describes a market where the overall market is rising. Typically, this is measured by the NASDAQ and the Dow Indexes. Experts recommend that you only buy during Bull Markets because the odds are much more in your favor - this is true, but keep in mind there are plenty of stocks that plummet during Bull Markets too.

Bear Market - This describes a market where the overall market is dropping. As with Bull Markets, again we measured this by the NASDAQ and the Dow Indexes. Experts recommend that you only sell short during Bear Markets because the odds are much more in your favor - this is true, but keep in mind there are plenty of stocks that rise during Bear Markets too.

The important thing about using indexes to help your trading was mentioned earlier. During Bull Markets, you can expect 65% or more of all stocks to be rising - so if you look to buy during Bull Markets, the odds are very much in your favor. Of course, the opposite is true with the Bear Markets. Another characteristic of these two markets is that Bull Markets generally last 2-3 years, while Bear Markets last only 1-1 ½ years. So it's a very good idea for new traders to get in the habit following the indexes early in their learning. This will give you a tremendous advantage.