In Brazil we have a saying to explain when we really like something. Like this:
‘The stock market is a cachaça’
If you don't know, DANIEL, "cachaça" is a Brazilian run made from sugar cane. It’s the base for our famous capirinha (1-2 limes sliced in quarters, 1-2 tablespoons of sugar, 1 lime smashed in the cup you’re going to drink to extract the juice, 2 ounces of cachaca, and crushed ice).
We say something is a cachaca when we, borderline, are addicted to it. We tried, we want more.
Why am I saying that? Because the stock market is really a cachaca.
I worked in that industry for 12 years, in many roles. I traded bonds, I traded stocks, I jumped into the Private Equity sector. And trading stocks were addictive.
I know stocks don’t have anything to do with real estate, but what’s bad in wanting to make a little more money?
I’m sure that you are thinking in your head "It sounds cool when I listen to people talking about it, but I don’t know anything about it."
Well, let me tell you a secret.. you don’t have to know a lot.
You can start trading (not investing, this is completely different) knowing only 4 concepts:
Support is the lower price a asset tends to touch in a giving period.
Resistance is the higher price a asset tends to touch in a giving period.
Trend line is the combination of both, but when the marketing is moving up or down.
It works like this…
When you see the prices of an asset going down, you want to buy them. You always buy when something is down. But how down is down enough to buy?
On this example you can see that is normal for this asset to, when it gets to that price, it starts to go up. Why? Because everybody is seeing the same thing and they start to buy. When a lot of people buy something, the price of this something goes up.
After you buy it, because you are trading, you want to know when to sell it. Remember: everything that goes up must come down. But how high is high enough to sell? Guess… when the prices of that asset gets to a resistance.
Is the same concept. When the price hits that mark, every trader is looking at the same graphic, and they start to sell. And what happens when a lot of people is selling the same thing? Prices go down.
Go with the flow
Not always you are going to see a lateral market (when the prices move from a down to a top in a horizontal way.
Sometimes, when people are selling, the strength of this sale today is weaker than the one from last week, meaning, the price is not going that low. The opposite happens on the way up, and the top price from today is higher from the last time.
This is an example of a bull market.
Well, when the market is going down, you can do the same thing. We call it a bear market.
If shit hits the fan... You use stop loss. This is not an exact science. Sometimes, after the asset hits its support, and you bought it, the market can be a strong seller, and that support is broken. When that happens, you have to stop your losses and sell your assets. After you do all of that, repeat. And there you go. You became a trader. This is off topic for our regular real estate communication, so I will create a separate mailing list only for people that look forward for this kind of content. If that’s you, please click the link bellow.