Investing is an art as much as a science, and thus there is no simple way to learn how to "play" or trade the stock market. The proliferation of financial news media underscores the fact that there is no one answer to understanding the stock market. However, there are some basic strategies and fundamental principles that will enhance your chances of successfully trading.

Understand the Big Picture

As much as individual stocks may seem to be independent entities, by definition they are part of a stock market, and the stock market as a whole is affected by macroeconomic events. For example, when the Federal Reserve Board adjusts interest rates, when the President speaks about various economic policies, or when government data such as the unemployment rate is released, all stocks are affected, regardless of their inherent value. Learning how outside events affect the stock market as a whole is a big component to learning how to trade or invest because it can help you anticipate market movements based on the calendar of upcoming events. Before you invest, watch to see how different events affect the stock market. Take the time to do some historical research and see if any major rallies or declines were triggered by special events that may repeat themselves in the future.

Look at Company Fundamentals

Over the long haul, the internal financial workings of a company help guide price movements. Fundamental business concepts such as profit and loss, expenses, growth rate, and internal rate of return all affect how a stock is valuated in the marketplace. The best way to grasp what financial factors affect a business is to take an accounting class. Understanding the long-term outlook for a stock's underlying business can help you determine a stock's trend beyond its day-to-day fluctuations. It can also help you avoid companies that are underperforming, which will inevitably lead to stock declines.

Study Chart Patterns

Particularly for active traders, understanding various chart patterns can help you anticipate short-term movements in a stock. While there are numerous books on the subject, and extensive coverage on the financial news networks, the best way to learn chart patterns is on your own. Focus on a very limited number of stocks that you are interested in, and examine both their current and historical trading patterns. Compare these charts to those of stocks that have recently made large moves, up or down, and see if you can draw any comparisons. Bear in mind that a number of factors beyond chart patterns affect how stocks trade; however, it is an important piece in the overall puzzle of learning how to trade in the stock market.

Source:

FINRA: Choosing Investments: Stocks

More Information:

FINRA: Guide to Investors Regarding Stock Volatility and Online Trading