How to Read the Stock Market

We know stock market exists, but phrases like what is stock, buying and selling of stocks, stock market charts, bulls and bears, general understanding of the stocks are alien words for many of us. Many of us in fact fail to understand, what is the stock market? We hear our neighbors cribbing about the low stock market prices and our colleagues suddenly becoming richer than before due to their stock investments. Businesses earn profits and businesses are sold out due to this intriguing game of stock market. Stocks represent the companies assets and profits. The profit of the company is annually divided among the share holders as dividend. For example, if a company has 15 owners owning one share of the stock, and the company makes a profit of $95,000 in a year, then each of the stock owners earns a dividend of $6333 approximately.

What is Stock Market
Stock market is the place where brokers trade company stock and other securities that are listed in the stock exchange as well as privately traded securities. Stocks can be exchanged physically in the market or by virtual exchanges. Stock markets are popularly known as stock exchanges. Buyers and sellers trade their stocks according to their needs. There are two types of stock markets:

• Primary Stock market: New public offerings or issues are traded between sellers and buyers.
• Secondary Stock Market: Previously launched stocks already in the market are traded by the buyers and sellers.

Understanding a Stock Market
There is nothing esoteric about learning the stock market. If you want to become a hard core investor or remain outside the circle of investors and have a general understanding of the stock market, then learning to how to understand the stock market charts will help you get a fair idea.

Stock Prices: The position and performance of the issuing company directly affect the price of a stock. The price of the stock multiplied by the number of outstanding shares known as market capitalization is important. The companies future growth, current performance and expansion are the factors that help determine the stock prices. When a company gives a poor performance, the share prices fall and when it performs better than expected, the share prices rocket sky high.

Reading the Stock Market Charts: A typical stock exchange chart or quote will give you the current status of the stocks performance. The stock changes are day-to-day changes and intra-day changes depending on the trade during the day.

52 Week High and Low: The data of the last 52 weeks is displayed on the reporting date with details of the highest and lowest prices.

Type of Stock: There are specific symbols written after the name of the company to represent that it is preferred stock. If there are no symbols mentioned, then the stock is common stock.

The Ticker Symbol: This is the abbreviation of the company name. The companies use this short form so that their names can fit on the actual ticker tape. The major stock exchanges of US; New York Stock Exchange, American Stock Exchange and the NASDAQ allow one to four letter abbreviations. These are like the old heraldic symbols used by the British. One can make their own symbols but different from the ones already in use. For example, Intel uses INTC, AAPL stands for Apple Computer Inc., COKE used for Coca-Cola Bottling Co., KO abbreviated for Coca-Cola Co. There are certain symbols that have one or two extra letters led by a period to explain something more specific about the stock. For example, BRK.B stands for stock from Bershire Hathway Company(BRL) of a lower value 'Class B' stock.

Dividend per Share and Dividend Yield: When both these columns are filled, it shows the company is issuing dividends. The dividend yield is calculated as the number of annual dividends per share divided by the price per share. The dividend yield represents return on the dividends.

P/E Ratio: Price/Earnings ratio is calculated by dividing the latest stock price by the average earnings per share, from the last four quarters.

Trading Volume: This shows the total stock trading, that is, the total selling and buying transactions, for that day.

Closing: The last price of the stock quoted at the close of the day's trading.

Net Change: This is the difference between the price, since the last change. It shows the direction of stock price. It is represented by a plus or minus symbol, to represent the direction change.

Bulls and bears: The bull market represents rising stocks. This is a healthy economic indicator. Businesses and people earn a lot of profits from selling stocks in the bull market. A bear market is the complete opposite of the bull market. Bear markets represent economic downfall, where investors sell out their stocks in anticipation of further fall in prices. Many businesses and people loose money and are financially destroyed during the bear phase, if they have mis-timed their buying and selling. The rule is to buy low and sell high.

A new comer in the stock exchange world will have difficulty in understanding the stock market. With time you will develop a sense of 'safe' and 'risk' when trading in stocks. Do not focus on the fancy indicators, just keep a track of the price movements. Your interest as an observer will soon change into a serious investor outlook, as you develop your knowledge of the stock market. With a little bit of caution, start chasing the bulls and bears!