The very first truth you need to know about the stock market is that there are no truths in the stock market, other than: if you sell at a higher price than you bought, you will have a very good chance of making a profit. Regardless of what all the experts, books and articles say about any aspect of the investment world, the truth is that it is all just opinions, interpretations of events and theories that try to approximate the reality that is the stock market. This, of course, applies to this book as well. This book is a guided tour through beginner and intermediate concepts, opinions, interpretations and theories about the stock market. Hopefully, it will give you the background information you need to form your own opinions, interpretations and theories about how it works. The first myth that needs to be dispelled is the financial holy grail. The myth about a system, strategy or plan that is nearly infallible and gives a foolproof chance of making it in the stock market. Having been involved with the stock market for a number of years, and having worked with many of the top traders, I can say with confidence that there is no such thing as the financial holy grail. There are, though, consistent methodologies that can greatly improve the possibilities of profiting in the stock market in the short, intermediate and long term. All investments, in the stock market or otherwise, have risks, rewards and a possibility of success. You can think of these as three arrows that can’t all point in your favour at the same time. At best, two of the three will be in your favour. For example, the lottery offers exceptional returns and very low risk. You are usually investing (risking) 1 dollar or pound and have the potential to win hundreds, thousands or even millions in return. Even though you have great risk/reward ratio your possibility of success is nearly zero. When trading futures, also called commodities, there are good possibilities you will be successful, and the potential rewards are very impressive thanks to the leverage available in the futures market and the volatility of most commodities, but you also have great risk of loosing all of your investments very quickly if you make mistakes. Savings accounts and other banking, interest-based saving vehicles like certificate of deposit, money market accounts etc. have virtually no risk and very high probability of success. But they fall short in the rewards category, having a fixed (and low) return potential. Finally, stocks offer a somewhat balanced risk/reward/possibility of success ratio. Prepared and conscientious investors have very good possibilities of success with very acceptable risk and reward levels. This is one of the main reasons why many have flocked to invest in the stock market.
About Victor A Cuadra
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Published March 12, 2009
by Matrix Digital Publishing.
Business & Economics.