There are new investors coming into the stock market all the time and most seem to be unaware of how it actually works and this causes them to panic and become greedy. Here is some stock market for beginners information which can help you keep your calm and help you see the bigger picture.
Ever since there has been a stock market there has been a consistent and ongoing pattern that has been forming. No matter what anyone says it is likely that it will continue to happen in the future. And this pattern is not limited to the stock market, it happens in every market where there is legitimate long term demand.
So, what is this pattern? Well I like to call it the bull/bear market cycle.
It starts off when prices are cheap and the economy is doing well. Investors see these stocks at such low prices compared to what they are actually worth and they start buying. That brings way to more people jumping in and buying these stocks.
As stocks go higher and higher more people think that there is a gold rush going on and start buying stocks. The added demand pushes stocks higher.
Then people start to think that bear markets will never happen again and that the stock market is going to make everybody rich. In fact in the late 1990s just before the 2000 crash there were people saying that the new internet age has eliminated bear markets.
But in the end the market simply cannot sustain the higher prices forever. One of the main causes of the great depression was that the prices were simply too high and needed to pull back at least a little bit to come back to a realistic level.
Eventually smart investors start to sell their stock because they know it is too expensive. This pushes the price of stocks down and leads to a lot of panic selling. The added selling pressure brought on by the panic leads to lower prices and so on.
Eventually the “gurus” stop trying to call the bottom of the stock market and everyone thinks that the world is ending. One of the free stock tips that people tend to give is to start investing your money during this time because it is usually when the bottom hits and we start going up again.
While stock prices are still low and the economy is improving people start jumping into the market creating another bulls market. This is an endless cycle that happens again and again and will likely happen far into the future.
For more information on the stock market visit Shaun’s site on the stock market basics This article, The Continuous Market Cycle is released under a creative commons attribution licence.
