8 Factors That Affect Daily Trades

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8 Factors That Affect Daily Trades

A variety of variables might influence an investor’s decision to enter (buy) or leave (sell) a particular company or industry. The significance of timing the entrance will vary depending on the investor, their objectives, and their investment time period. Obviously, the shorter the time period, the more essential the entrance; for long-term (five years or more) investors, individual entries are unimportant.

However, all investors should be aware of some of the most prevalent market-moving forces that might impact the price of a stock. By being aware of these market characteristics, investors may make stronger entrances and earn an additional percentage point or two. Let’s take a look at the eight elements that might have a significant influence on a typical day’s trading.

Investopedia / Julie Bang

1. Overseas Market/Economy

Each day, the New York Stock Exchange starts for trading at 9:30 a.m. ET. Prior to the start of trading on the “Big Board,” however, equities markets in Asia and Europe have already (or almost) completed their trading day. The argument is that if certain equities or sectors have had a very good or disastrous day in other markets, the emotion may have an influence on trading in the United States.

A negative view for Asian technology businesses or European pharmaceutical companies, for example, could easily bleed over into US markets and lead American technology and pharmaceutical stocks to plummet. This, in turn, has a significant negative influence on all of the main indices. If you see significant negative activity in a foreign market that affects your industry, it may be preferable to wait until the dust settles before entering the position. This will often save you money straight away.

2. Economic Data

If there is discussion of China revaluing its currency (the yuan), shares of Chinese exporters may trade higher. (The theory behind this is that with a stronger yuan, Chinese enterprises and people would be able to purchase more American-made goods.)

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In addition, changes in interest rates may cause money to flow into or out of certain markets. If interest rates in the United Kingdom increase, for example, investors in that market may leave for better chances. Frequently, US stocks will profit.

You should be aware of any economic news that is or will be released around the time you go to enter your position when deciding whether to invest. If a highly anticipated economic release is scheduled to be released, it may be wiser to wait for it rather than rushing in before of time.

3. Futures Data

Although a person may be eager to purchase or sell shares “at the open” at a favorable price, futures data will provide a clearer indication of whether this would be attainable. Index futures contracts cover the key market indices. They begin trading before the stock market and are an excellent predictor of how the stock market will open. The reason for this is because index futures prices are closely related to the Dow Jones Industrial Average’s real level.

In brief, investors should monitor futures contracts to determine whether they are trading higher or lower in pre-market trading. This will offer them a better idea of where the index they are following is likely to go “after the open.” CNBC or other market channels will generally be discussing the movement of DJIA or S&P 500 futures before they open.

4. Buying at the Open

Buying or selling shares at the start of the market may be a bad decision. Why?

During the first hour of trading, there is usually a lot of buying and selling. The first hour of trading is essentially the first opportunity for most market participants to join or leave the stock, which may easily result in higher-than-average trading activity. These market players are responding to the plethora of news articles that broke between yesterday’s closure and today’s start, including big market news events such as economic reports and political upheavals.

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A few bellwether stocks post results or release news before the market opens. This may prompt certain investors (both retail and institutional) to move money into or out of a sector at the earliest opportunity, resulting in a stampede at the open.

5. Midday Trading Lull

At noon, most important news events are out in the market, hence there is often a dip in trading (meaning the amount of transactions). Stock prices often fall during this period.

When this occurs, stocks may be acquired at a lower price at 1 p.m. than at, say, 11 a.m. This is crucial to understand since it may effect both entrance and departure points.

6. Analyst Ratings

An analyst may provide an intraday note that has a major influence on a particular stock or industry. Remember to read financial websites or watch business news on television as a hint. If a significant corporation has just been upgraded or downgraded, assess the likely effect on certain sectors and the market as a whole.

For example, if a major semiconductor stock were downgraded by a well-known analyst due to slackening demand for that company’s products, it might be reasonable to assume that other smaller players may be experiencing similar trends. It might also be logical to assume that shares of computer makers (which purchase large numbers of semiconductors) might be impacted as well.

Also, if a major home builder was upgraded due to strong demand for its homes, it is reasonable to assume that other sizable players within the industry (that have the same geographic footprint) may be experiencing a similar increase in demand. By extension, the increase in demand for new homes could mean big business for home improvement stores andfurniture makers.

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7. Social Media and Blogs

The internet has transformed the way people invest, as well as the way the public at large obtains news; therefore, if a web writer or journalist disseminates a bullish or bearish article about a company throughout the trading day, this can have a huge impact on its stock.

All investors should try to peruse the web and visit major news portals throughout the day to see if there are any potentially market-moving news stories in the public domain. Be careful to avoid sites that give recommendations based on the stocks they own. These pump-and-dump schemes are prevalent on the web.

8. Friday Trading

Even if you’re a “buy-and-hold” investor, a significant number of retail and institutional traders typically liquidate their equities on Friday (usually in the afternoon), so they don’t have to hold their positions and assume risk through the weekend. What does this mean for you?

It means that stocks can and often sell off Friday afternoon during the last few hours of the trading day, if for no other reason than traders are looking to go home “flat” (without positions on their books) (without positions on their books).Keep this in mind on Fridays if you are trying to find a favorable time to enter or exit a stock position.

The Bottom Line

While company-specific events might have an influence on stock prices, a variety of other variables can also affect your shares. They should be known to astute investors.

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