As a new trader there are some markets that you are better off staying away from until you have built your confidence and understanding. Here are four markets we would suggest new traders enter.
1. Small Market Capitalization Markets
Stocks with a small market capitalization often have low liquidity. The lack of liquidity in a market means that there is often very little price movement which in turn means little opportunity to make profit. Small market cap markets are also susceptible to marketing manipulation by “whales” who have the capital to make prices gap up or gap down suddenly. Small market capitalization is identified as a market value of $2 billion or less.
Top Tip: Beginners stay away from penny stocks!
2. Markets with Large Spreads
If a market has a large spread, it is not necessarily a bad thing but it means that the price will have to move in your predicted direction for longer before you break even. Just make sure you consider this when entering a trade.
3. Extremely Volatile Markets
While market volatility is the catalyst for potential profit. Extremely volatile market can see you make loses exceeding you stop loss of the price makes a sharp move and gap up or down past your stop loss. However, if scalping is your strategy of choice these markets may be where you excel however risk management is much harder when price changes can be large and instantaneous.
4. Trading Earnings Announcements
Trading a stock during quarterly earning profit reports can be a very lucrative strategy but is also very unpredictable as share prices can move by a large percentage immediately before or after earning have been announced. You also cannot rely solely on technical analysis when making a decision whether to buy or sell as a multitude of factors can determine how the price reacts to the announcements. Other variable such as earnings estimates and current valuation but be considered.