It’s a no brainer that there is money to be made investing in stocks. But then it is just as likely you can lose money. The key is to pick stocks that will perform as you want. There are three terms that you may not have heard of and why they are important to you.
DEAD CAT BOUNCE: This is the temporary recovery of a stock price during a general downward trend. Often it is caused by rumor or market talk ups. People believe the stock has reached its lowest price and begin buying. The dead cat bounce effect means the price will drop again and they are likely to lose money.
Why this is important for stock trading: No one can really predict when a market or stock recovery will happen. It can however provide an opportunity for investors to buy or sell quickly to take advantage of the temporary price increase.
THE BELLWETHER STOCK: This is a market indicating stock, one that predicts the direction of the market.
Why is this important to me? These stocks usually have a large percentage ownership by institutional investors - the big boys on the scene. While these stocks may signal the direction of the market they may not be the most attractive investment choice for those wishing to make gains. They are useful to watch however to get a feel of what might happen next.
THE JANUARY EFFECT: It has been recognized that at the beginning of a new calendar year prices tend to increase across the month of January. There can be many reasons for this but often the big two are taxes and investor psychology.
Why is this important? It has been shown in investigations that the January effect is real. However in recent years it has become more difficult to take advantage of. So it may be useful to watch for, but it is unlikely to be a reliable way to make money.