StockTradeTiming.com
An Historical Stock Simulator, Maximizing Profits by Spotting Trends

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Market Classifications:
Within the stock market there are different sizes of companies. Each company is measured by its market capitalization or market value (the number of shares multiplied by the share price)5. There are large cap stocks comprising companies worth over 5 billion and 70% of the US market value, medium cap stocks comprising companies worth between 1-5 billion and 20% of the US market6, and small cap stocks that comprise of companies worth less than 1 billion and 7% of the US market. Note that the exact amounts fluctuate from year to year and are on the rise. Growth investors tend to look for small or mid cap companies that have room to expand in the market. These smaller companies that are performing well have space to grow and that will be reflected in the stock price. But when a Company is a large cap company as big as let's say Wal- Mart (10% of the retail sales in America) the thought is that it's as mammoth as it is likely going to get and it's reached it's potential. So growth investors often stay away.

Sectors:
The market is also divided into different sectors. Some of those include: Technology, Utilities, Basic Materials, Healthcare, Services, Industrial Goods, Consumer Goods, Financials, Services. Each of these have their own variables that affect them and they go through cycles of prosperity and lackluster performance at different times. Jim Cramer suggests that investors should cycle their investments through the sectors in anticipation of market movements which affect different places in the market in different ways at different times.7

Market Indices:
There are Three widely accepted market indices that represent a good portion of the American Stock Market. First there is the Dow Jones Industrial Average (DJIA) first calculated in 1896. Named after Charles Dow and Edward Jones. It is a representation of 30 of the largest American companies. Companies on the list come and go according to performance and analyst criteria. Second there is the Standards and Poor 500 index (SP500), which is a weighted index of 500 large American companies listed on the New York Stock Exchange. It represents approximately 70% of the US market. 8 There is also the Nasdaq which stands for the National Association of Securities Dealers Automated Quotations. It is an electronic stock exchange created in 1971. It has no exchange floor because basically it is just a network of computers and brokers. 9 It's major index is the Nasdaq Composite which is a list of 50 large companies weighted more towards the Information Technology sector and absent of the Financial sector. It was also launched in 1971.10 There is also the The Nasdaq 100 (107 of the largest stocks listed on the Nasdaq Exchange). It was first launched in 1985 and the stocks in the index are weighted according to their market capitalizations or size.11

Spread
Fees are taken from the profits in two ways. First the customer pays commissions for each trade executed (usually between $3-$11 for discount trading houses). Second the customer pays a semi-hidden fee known as spread which is the amount of money between the bid and the asking price (also known as the buy and sell) for each trade. Meaning that when a trade order is completed the person who does the selling sells for less than the person who does the buying. The spread that is pocketed by the trade exchange is generally larger for smaller cap stocks that have greater growth potential but are riskier, and less for larger cap stocks that are less volatile.12

As a result of spread a great deal of the profits one would expect to make with frequent trading for small cap or medium cap stocks that have the potential for growth never quite materialize. Spread is one of the drawbacks to making frequent trade. Traders must always be aware of these subtly concealed fees and how much they affect the profit to successfully come out ahead. In fact those that trade the most, what we call day traders (those who place a trade at least daily), generally only buy mega cap or large cap stocks anyway and completely stay away from the other caps.