How to Trade Shares Online
The most volatile sector of the capital markets which provides some of the best risk/reward to investors are equities. Online share trading provides investors with an opportunity to trade the capital markets using robust leverage. There are several strategies that you can use to trade the equity markets including fundamental analysis of specific companies and industrials. You can also use technical analysis that focuses on past price movements to gauge future movements in the price of a stock. You can also trade sectors as pairs where you are generating a market neutral strategy.
What Drives Shares?
Shares are made up of either individual companies or multiple companies that trade in a specific industry. This latter group is called sectors. When you trade a sector such as the financials, you are trading a group of companies that participate in banking or insurance or the brokerage business.
Shares are riskier assets, and generally outperform less risky assets when interest rates are lower or declining and economic growth is stable. During these periods investors look for higher yielding assets as fixed rate assets such as bonds begin to yield a lower return. Investor generally monitor the macro picture to determine the global outlook for equities.
The Micro Picture
Traders will look at the fundamental outlook of individual shares to determine if a company will perform well over a specific period. This will include evaluating the financial results of a publicly owned company an analyzing the earnings and revenues released by the company on a quarterly basis. Many times if one company in a specific sector performs well, it's likely that the other companies in the same sector will outperform.
In addition to the fundamental analysis, many investors use technical analysis to evaluate the future performance of shares. This methodology focuses on past price action and uses that to determine future movements in the price of a stock. There are technical studies that focus on trend line and which evaluates support and resistance levels. There are technical studies that evaluate trends using moving averages to determine if a stock is trending in one direction or another. Another popular study is momentum. An investor can determine whether an asset price is accelerating or decelerating which can provide information about the future trend.
Using a Market Neutral Strategy
If you are trading shares or sectors you can generate a market neutral strategy that benefits from the outperformance of one sector or stock over another. For example, if you believe the Financial Sector is going to outperform the Utility space, you can purchase an ETF in one sector and simultaneously sell another ETF. You can use this strategy for stocks within the same sector for example, you could purchase Facebook and simultaneously sell Google.
The online share market provides opportunity to trade multiple instruments using several different strategies. By combining a fundamental strategy with a technical methodology you can develop a trading strategy that works during all market conditions.