The Factors to Be Considered at a Time of Making a Choice of Investing in the Stock Market

Trends

A solid trend in a stock is likely to continue indefinitely. If the trend is up, this is a good reason to buy the stock. If the trend is down, then you should avoid buying, no matter how low and "discounted" the price seems, since the trend could continue to push it lower. Identifying a trend is one key to success in stock market investing. When looking at a chart, it is easy to see the highs and lows that form as prices fluctuate. If the consecutive highs are rising, as are the lows that occur between these highs, the stock is trending up. This is called a pattern of "higher highs and higher lows." If you see this at the time of making a choice for your investment, consider buying. If you see lower highs and lower lows, avoid buying until at least a new higher high forms.

At the time you make your investment choice, don't pull the trigger on a purchase or sale until you consult the economic calendar as well as the company's quarterly reporting schedule. A government or respected third-party report on the economy can have dramatic consequences in the stock market. It is always prudent to wait until the release of a report before making your purchase. The same is true of an earnings report by the company. If reports are worse than expected, you may rethink your decision to buy at this point in time. If the reports are good, it can add extra confidence to your decision to buy now.

Other financial instruments besides stocks can sway the movement in the stock market. Derivatives, such as futures and stock options, are contracts that eventually expire. When different types of derivatives all expire on the same day, large forces are simultaneously at work in the market, which often increases the volatility of all stocks. In particular, the so-called "triple witching" and "quadruple witching" days should be avoided by the novice trader for making stock purchases. These occur on the third Friday at the end of each quarter's month: March, June, September and December. The stock market may be exceptionally volatile on those particular days, but also in the preceding days of those weeks.

While it is always good to consult a stock chart when analyzing a company's stock, it is also wise to consider fundamental variables that impact the overall strength of a stock. Fundamental analysis can be complex, but some basic points are worth considering at the time of making an investment choice. In particular, the price-to-earning ratio, often called "P/E ratio," is a measure of the stock's va-ue compared to the company's actual earnings. A low P/E ratio suggests less expensive stocks relative to the company's performance. Compare the P/E ratios of your chosen stock to other similar companies in the same sector. If it is the highest, it could be a riskier bet than other companies that perform similar business.