Stock trading, when done the right way, can help you generate appealing profits. The stock market offers many opportunities to traders, and the ones who grab them get rewarded. Unfortunately, it isn’t a one-way road, and many traders and investors end up losing money. People, especially when beginning stock trading, shouldn’t make random decisions when risking their hard-earned money.
It’s important to plan your every move carefully as a trader. If you are new to the stock market or want to enter it the right way, you’ve come to the right place.
In this article, we’ll discuss how beginners can start stock trading, and we’ll also discuss the popular trading styles they can choose. Moreover, we will share some fantastic trading strategies and tips that they can follow to increase their chances of making a profit. Make sure to read this article carefully before risking your money.
How to Start Stock Trading?
Decide how much you want to risk
Before buying stocks or any other asset, you have to decide the amount of money you want to risk. You should know that the stock market has no place for the money you need for important things, such as rent, electricity bills, vacation, and medical expenses.
You shouldn’t touch your emergency funds, and you shouldn’t start trading if you are already in debt. Additionally, you shouldn’t buy stocks with borrowed money. The right approach is to use a fixed percentage of your income or savings for trading. Using 2%-5% of your income can be a safe option; however, you can choose any other amount depending on your risk tolerance. If you’re clear about your risk tolerance, you won’t face any issues. In general, you invest the money you can afford to lose.
Open a brokerage account
It’s easy to open a brokerage account, and you can do the job quickly. However, there are some important factors one should consider before opening an account. You should be clear about the trading fees, the application process, reliability, user interface, customer support, portfolio construction tools, payment options, and every other factor on your priority list.
Once you find the perfect broker according to your needs, you can start the application process and create an account. After creating an account, you will need to enter all the required details to set up your profile.
Fund the account
After opening an account, you’ll need to fund it to start buying stocks. You can deposit the amount you have chosen after considering the factors mentioned above. You will get an option to choose from multiple deposit options, depending on the service provider you choose.
Start trading
After the third step, you will be able to start trading. You can start buying and selling the stocks you want.
This is how you can start stock trading. Entering the market isn’t the only important step, as you will also need a solid plan to make profits. Making random decisions won’t get you anywhere, and it will only increase your chances of losing your hard-earned money. In the following section, we’ll cover the popular stock trading styles you can choose from.
Popular Stock Trading Styles
Day trading
Day trading, or intraday trading, is one of the most common types of trading, and it’s also suitable for beginners. As the name suggests, day trading is the act of buying and selling stocks within the same trading day.
Day traders follow the market closely, as they rely on price movements during a trading day to generate profits. They open and close positions several times a day, which means their money doesn’t get stuck in one stock for longer periods. Moreover, they close their positions before the end of the trading day and don’t have to worry about overnight risks.
These traders can make profits quickly, as they don’t hold stocks for longer periods. They focus on making small profits per trade, and they can reinvest their profits to generate bigger ones in the future.
Day traders have to spend a lot of time and effort daily on technical analysis. As a result, a lot of people choose it as a profession and become full-time traders. Trade commissions can also be an issue for day traders, and it’s important to make all the required calculations before executing a trade.
Swing trading
Swing trading is another type of short-term trading, but it requires larger capital than day trading. Traders hold a stock for more than a day, generally between two days to a few weeks, and they rely on short-term patterns and trends.
As the name suggests, they aim to generate profits from price swings. The job of swing traders is less demanding than a day trader, but they also have to invest time in chart analysis and detecting the beginning of new swings. You can combine swing trading with your 9-5 job too.
Swing traders also have to worry about trade commissions, as they execute multiple trades in a short period. This type of trading also involves overnight and weekend market risks. Regardless, it can be profitable with proper risk management.
Positional trading
Positional trading is another popular trading style, and it allows traders to maintain their positions for longer periods compared to day trading or swing trading. Traders ignore market noise and don’t pay attention to short-term price fluctuations. The goal of a positional trader is to capitalize on long-term trends.
Positional traders can hold a stock for days, weeks, or even months. Risk and profit potential are greater in positional trading, as traders hold stocks for a longer period. Overnight and trend reversal risks are also involved.
Positional traders aren’t concerned about trade commissions, as they execute only a few trades within a given time frame. Also, they are often part-time traders, as they don’t have to examine the price movements every few minutes or hours. However, capital requirements can be an issue, as their money gets stuck in stocks for extended periods.
Arbitrage trading
Arbitrage traders exploit the tiny price differences between similar assets in two or more markets or exchanges. They buy an asset in one exchange and sell it in another exchange to generate profits from the price difference. They buy and sell assets simultaneously, and they usually get only a few seconds to minutes to grab the opportunity.
As an arbitrage trader, commissions will be your biggest challenge, as they can neutralize your profits. To find the right opportunities, traders have to stay active and pay attention to the price movements on different exchanges. It can be challenging for part-time traders.
Noise trading
Many traders ignore market noise and focus more on fundamental analysis, but noise trading is the complete opposite. Noise traders buy and sell stocks without doing a fundamental analysis, and they try to generate profits from short-term price movements.
These are the most popular trading styles that people choose. They all have different demands and require different skills, so you should pick an option according to your preferences. Time consumption, capital requirements, and goals should be on your priority list when making a decision.
Choosing a trading style is only the first step, as traders also need a solid strategy to maximize gains. It can be difficult for you to choose a good strategy when beginning stock trading. To help you, we will discuss the best stock market trading strategies in the following section.
Best Stock Trading Strategies
News trading
The news trading strategy can be very profitable, especially in the case of short-term forms of trading. This strategy allows traders to buy and sell stocks based on the latest news and market expectations. Good news can lead to an increase in stock prices, and bad news can initiate a downward movement. You can find news and press releases every day, which is a good thing.
Traders have to stay active and act immediately when good or bad news is released. It means you will have to invest a lot of time and effort, which can be difficult for part-time traders.
Support and resistance trading
Support and resistance are two of the most commonly used terms by stock market traders and investors. They can help short-term traders plan their moves and determine when to buy and sell a particular stock.
Generally, traders buy a stock when the price falls towards the support or breaks up through resistance. They sell the stocks when the price rises towards resistance or breaks down through support. Sounds simple, right? Well, the biggest challenge for beginners is to determine support and resistance. If they find the indicators successfully, the job will become easier.
50-day moving average trading
The 50-day moving average, or 50 DMA, is an indicator that helps analyze price trends. In simple words, it’s the average of an asset’s closing price over a 50-day period.
The 50-day moving average indicator is useful, especially for positional traders. This strategy is popular for two main reasons:
- It works well as a trend indicator
- It’s shorter than 100-day and 200-day moving averages
Pullback trading
A pullback is a small downward movement in an asset’s upward trend or a small upward movement in an asset’s downward trend. This small opposite movement in the current trend allows traders to find an entry point and open new positions. Pullbacks aren’t the same as reversals, and the price starts following the main trend shortly after a small movement in the opposite direction.
Breakout trading
The breakout trading strategy requires traders to open trades during the early phases of a trend. Usually, traders following this strategy open a long position when the price of a stock breaks and sits just above the resistance, and a short position when the price falls just under the support. The only challenge for beginners is to spot the support and resistance levels.
Scalping
Scalping is an effective strategy for traders who prefer short-term trading styles. Traders buy and sell stocks multiple times and try to make small profits per trade. The small profits they make per trade add up over a time period and help them get closer to their long-term goals. This strategy can be used along with other strategies. Beginners can also try it, as it’s easy to follow. However, you should be clear about your entry points and target price before buying any stock.
These are the best trading strategies you can choose depending on your requirements and skills. They all are worth trying, and none of them is far better than the other. You will have to pick a strategy that works best in the current market conditions. In the following section, we’ll share some valuable tips you should follow when beginning stock trading.
Tips You Should Follow
Always have a target price
Investing or trading without having a target price in mind is like moving on a never-ending road. You should never buy a stock without having a target selling price in mind. If you open a position without a target, you won’t know when to sell. Your profit can get neutralized in such a case because stock prices don’t move in the upwards direction only. You should close your position and book your profit before a reversal.
Don’t have unrealistic expectations
“Follow this stock trading strategy, and you will become a millionaire overnight.” Did you start trading after reading such statements? If you did, you must know that these statements are misleading, and such expectations are unrealistic.
Stock prices can skyrocket in good economic conditions, but downward movements can often follow these sudden price increases. As a trader, your goal should be to find the right entry points, and you should close your position when the stock hits the target price.
With realistic expectations and a good strategy, you can make small profits regularly, which will add up over time. But, with unrealistic expectations, you will get disappointed even if you make a small profit, and you can also lose money while chasing huge profits.
Don’t risk 100% of your funds in a single trade
What will you do if you risk 100% of your funds in a single trade and things don’t go your way? It won’t be easy to recover from this situation.
The right approach is to risk only 1%-2% of your funds per trade or even less. In this case, even if you book a loss multiple times in a row, you will have enough funds in your account to keep trading and moving forward. Additionally, if your money gets stuck in an asset for an extended period, you will be able to keep buying and selling other stocks.
Always stay calm
You shouldn’t panic when you lose money, and you shouldn’t get carried away when you make a profit. Beginners often panic when things don’t go their way and make wrong decisions. The right option is to stick to the plan, and if you follow the previous tip, you will have a chance to bounce back even if a few trades don’t give the desired output.
You should also stick to the plan if a trade gives you unexpectedly high returns. If you get carried away and risk more money than you can afford to lose, things can become challenging for you. Trading has no room for emotions, and market swings have more importance than mood swings.
Don’t trust rumors blindly
“Buy this stock before it’s too late.” Did your friend or relative tell you, or did you read it online? Well, FOMO (fear of missing out) is the biggest enemy of traders and investors. Buying or selling a stock based only on rumors is the biggest mistake a trader or investor can make.
Rumors can affect a stock's price in the short run, but they don’t affect fundamentally strong companies in the long run. Instead of trusting rumors blindly, you should conduct proper research before making a move.
Understand the stock market basics and start small
You should value your hard-earned money and risk it only after understanding the stock market basics. You should be clear about the trading hours, factors that influence stock prices, strategies, trading styles, and other important trading terms. There’s no point in jumping into the market with no clue about the important factors.
Starting slow is also important, as there is no point in risking a huge amount of money with no market experience. You should be clear about your risk tolerance and trade accordingly. As you gain experience and learn how things work, you can start trading more stocks per session.
You should follow these tips when beginning stock trading. You aren’t guaranteed to make a profit even if you start the right way, but it will help you gain experience and will also reduce the risk.
Stock Trading: Risk vs. Reward
Stock market investments and trades are not risk-free, and you can lose money quickly. That doesn’t mean stock trading can’t be profitable. With the right strategy and risk management, you can minimize the risk and increase your chances of making a profit.
As a beginner, you should always calculate the risk-to-reward ratio before jumping into anything. As mentioned above, you should only invest the money you can afford to lose.
To maximize the chances of making a profit, you should also choose a trading style that suits your skills and goals. We have discussed several trading styles above, but your options aren’t limited to them. On the topic of trading styles, options trading is also a popular choice among traders.
Options trading can also be profitable, but beginners often find it challenging to make the right move at the right time. If you’re one of them, getting an options-picking service could be a good move.
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FoolProof’s popularity has increased a lot because it offers reasonably-priced services and doesn’t make any false claims. Members also get a 200% money-back guarantee, so you will have a worry-free experience. So, what are you waiting for? Start your 14-day free trial today and stay on the right side of the market.
Conclusion
We hope you found this article helpful and got clarity on all your doubts about stock trading. The stock market presents many opportunities to traders and investors, but it can be challenging to grab them, especially when beginning stock trading. However, beginners can also make a profit by creating a good strategy and doing risk management.
New traders have many trading styles and strategies to explore, but no strategy is better than the other in general. To be a successful trader, you should try different trading styles and strategies and see what works best for you.
If you’ve read this article carefully, it will be easy for you to start your journey as a trader on the right foot, as we have shared some valuable tips and discussed everything in detail. The trader’s journey is full of ups and downs. Create a trading account, make a solid plan, stay calm, and enjoy the process.