Introduction
Hey, it’s me again! This time instead of writing a medicine related article, I am writing about stocks and how to interpret them. As many of you know, our country is in an economic recession and major supply chain problems have been occurring since COVID-19. Most stocks rapidly dropped and will continue to do so until the recession ends (maybe 6 months from now but it is impossible to tell). With the employment rate decreasing and mortgage rates increasing, the GDP per capita and industrial production are spiraling downwards. In this article I wanted to teach how to interpret stocks using Japanese Candlesticks. This way, when the recession comes to its peak, I can help you take full advantage of the stock market. Since prices are going lower and lower, investing now in the stock market would not create high gains. Instead, waiting till the peak of the recession, when stocks are at an all time low, creates the perfect opportunity to invest. This is due to the fact that the stock prices can only go up from the all time low, creating an increase in wealth regardless of the margin. When the recession ends and the stock market becomes more profitable, the shares bought during the recession will be worth a higher amount.
What is the stock market?
Owning stock means that a shareholder owns a piece of the company equal to the total number of outstanding shares. For example, owning 300,000 shares out of a company that has 1 million outstanding shares would have 30% ownership. When buying a share of stock on the stock market, it is not being bought directly from the company, instead, it is bought from some other existing shareholder. Similarly, when selling shares, the stocks are not sold back to the company, but rather sold to other investors.
Two types of Stocks- Common and Preferred
Common Shares– Carry Voting rights and a say in meetings and elections.
Preferred Shares– No say in the company, but preferred have priority over common shareholders to receive dividends and assets in event of liquidation.
There must be a buyer and a seller for every stock exchange. If there are more buyers than sellers for a specific stock, then the stock price will trend up. Similarly, if there are more sellers of the stock than buyers, the price will trend down. The share prices on the market are set in numerous ways, but the most common is auctioning. An auction is where buyers and sellers place offers and bids to buy or sell. A stock is sold when the bid and the ask coincide. Stocks and investments are what separate the high class and the millionaires. So far, these two paragraphs explain how to use the stock market; I will now explain why it is important to invest and the benefits/costs.
Benefits/Costs of Stock Exchange Listing
| Allows building up of wealth by selling stocks for more than purchase price. Allows you to have a say in company meetings if you own common shares. | Possible to lose money if poorly invested without prior research. |
Method of Interpretation
Enough about stock information, you now know what the stock market is and why investing is important, now I will explain how to invest and what to invest in.
One common method that is easy to interpret stock graphs is the Japanese candlestick method. Just like bar graphs, the Japanese candlestick shows the markets open, low, high, and closing price. The black candles mean that the price is going down and the white ones represent an increase in price.
There are bullish and bearish patterns. Bearish patterns indicate that the price is likely to drop, and bullish patterns indicate that the price is likely to increase. I will give one example of each.
Bearish Engulfing Pattern – develops in an uptrend when sellers outnumber buyers. This indicates that the sellers are in control and the price will continue to drop. (The bar becomes tiny and there is small gap in between)
Bullish Engulfing Pattern – This is the opposite of the Bearing Engulfing pattern and the price will start to increase when the black bar is at its smallest.
Conclusion
I jotted down my thoughts regarding the stock market and think it is a perfect time to learn about it. I could mention all the techniques to figure out when prices are going down and up, but that would be a pretty long list. Instead, this link (Candlestick Charting) shows some other methods to figure out when to purchase. There are other sites such as fidelity that have professionals assist you, but it is better to learn on your own. I learned a little bit about stocks while researching and will continue to invest and learn. My only hope is that you also take advantage of the market the best you can.
Works Cited
https://www.investopedia.com/trading/candlestick-charting-what-is-it/
https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp