How To Do Stock Trading - A Guide For Dummies

The stock trading market can provide traders with massive profits, which is why trading has become increasingly popular in recent years. However, in addition to capital gains, the market's volatility can also lead to big losses.

Therefore, as a trader, it is important to have a good understanding of the market and know when it is the time to invest. If you are wondering how to do stock trading, read this thorough guide to ensure that you do so the right way.

How to Stock Trading

What is stock trading?

Before you start investing as a beginner, it is important to have proper knowledge of the trading process.

Stock trading refers to buying and selling shares with the goal of making money when the price of the asset changes. In other words, it is the process of buying and sharing company shares that are listed on a stock exchange.

The stocks, also known as equities, give the share owner an ownership interest. Hence, investors who expect a company to prosper in the future buy their stocks.

Given these points, the traders carefully watch the changes in the market, and their objective is to trade low but sell high. Timing plays a huge role in the whole process of stock trading, so you must ensure that you have access to a platform that enables you to start trading quickly.

The Process of Stock Trading (Step-By-Step Guide) 

The first step to stock trading is finding an online broker and opening a trading account. Online brokers work similarly to financial institutions, holding the money you will use for investment.

If you don’t have a trading account, you can open one in a matter of minutes. However, finding a reliable trading platform is of utmost importance. Before you start trading, you need to become familiar with the interface, tools, and materials it offers for its clients.

You will also need to inform yourself whether the platform charges fees or has any additional charges. Some trading platforms charge fees based on the trade volume, while others charge a flat rate per trade.

How to open a trading account

Opening an online trading account is a quick and simple process. To set up your account, typically, most platforms ask you to complete an online form.

Then, you will need to deposit the funds and verify the account (if needed). Once this is settled, you can then begin investing.

Generally, you don’t need much money to open such an account, and many platforms also enable users to open one without an upfront deposit. However, you will need to add funds to your account to be able to make an investment.

Aside from an extensive knowledge of the trading process and the terminology, every trader needs to be up-to-date on all trading news and events. There are plenty of trading books, articles, news outlets, and website tutorials to learn from, so studying trading concepts and strategies is crucial, especially for a beginner trader.

Follow the financial news and determine which stocks you would like to trade, as well as learn more about the companies and their stocks before you begin investing.

Start following the market on a daily basis when you can, and begin reading about the stock prices in foreign markets to stay informed. You can also take online or in-person classes and attend trading seminars to gain valuable insight into the overall trading market and the trading techniques to implement.

The asset prices in the financial market constantly fluctuate based on technical analysis, fundamentals, and other aspects. By getting familiar with these aspects, you will know when it is the best time to enter or exit a trade.

Before depositing any money and trading, familiarize yourself with the bid and the ask price and study the basics of technical and fundamental analysis. The bid price indicates the maximum price you are willing to pay to buy the stock, whereas the ask price refers to the minimum price at which the seller will sell the stock.

Fundamental analysis evaluates security by measuring its intrinsic value and considers dynamics, such as earnings, expenses, assets, and liabilities. The technical analysis evaluates the stock based on its past price and its volume chart to predict its future potential.

As mentioned, trading comes with both profit and risks. Before you invest your money, you can also start paper trading, which involves stock market simulators that allows you to practice trading. During virtual trading, you can follow real-time market actions, make buying and selling decisions, implement different strategies and analyze the outcomes.

Doing so will help you prepare until you are ready to start investing real money. As a trader, your online broker can provide you with trading ideas, or you may need to research and develop your own ideas.

When you are trading, it is recommended to determine the amount of funds you are willing to deposit and risk during the trading process. Even if you are an advanced trader, knowing the risk of putting more than 10% of your trading portfolio into an individual stock is very important. Don’t invest money you will need within the next couple of years, but only the amount you can afford to lose.

Equally important when it comes how to stock trading is to know how to prevent heavy loss. Simply put, you need to set a stop loss price to prevent severe damage to your capital.

Risk management depends on the particular strategy that you are using, but the key point is to know the entry and exit points and stick to them. You can also diversify your portfolio and think about rebalancing it as the market moves over time.

Moreover, you can document the trading process, including the holding period and the risk you took so that you have a better idea of the trading process and the outcomes in particular situations.

The process of trading is not simple, and it requires your time and attention. Hence, consider trading only if you have enough time to spare. This is because, as an active trader, you will need to spot the opportunities that occur and take action as quickly as possible to take advantage of them.

If you are a beginner trader, start with only one or two stocks, as tracking the market and finding opportunities for a profit is much easier if you manage only a few stocks. Then, based on your trading knowledge, recognize the patterns in the market and time the trades to make a profit.

When you open the brokerage account and put in a deposit, you can then start placing stock trades. You can place a market order which means buying and selling stocks as soon as possible at the best available price or placing a limit order. The limit order refers to buying and selling the stock at or better than the specific price that you set.

As a beginner trader, go for stocks likely to maintain good performance even during adverse market conditions. A very significant thing to note is that it is crucial to stay realistic when trading. Also, a trading strategy doesn’t have to succeed all the time to be profitable.

Seasoned traders often profit only on 50% of their trades but make more than they lose. Another important thing is to lead with logic as opposed to emotion and stick to the plan so that you make informed decisions. Successful traders continue investing over time but continue to gain wealth by making additional money for investments.

Choose the right stocks

Now that you know how to stock trading, you can choose your stocks and execute a trade. Before you start, a good idea to consider is to diversify your portfolio. However, stick to businesses that you are familiar with and avoid high-volatility stocks until you get a hold of trading.

Moreover, you need to be aware of schemes that promise quick returns and companies that are committed to luring novice traders. Instead, invest in reliable companies and make sure that you are familiar with the whole process before investing your hard-earned money.

There are various methods to implement to accomplish a successful trade, each with its own benefits and risks.

Some of the most common strategies for stock trading include following a trend (making a purchase when the price is booming and making a sale when the price goes downwards) and growth investing (when the company continues to grow profit).

There is also a contrarian strategy (trading against the market trends to gain profit) and scalping (a trading strategy that specializes in profiting from small price changes and making a fast profit off reselling), and more.

Stay Informed About the Trading Process

Given that the stock market is unpredictable, predicting the price of the stock is challenging. However, as a beginner, you can take advice from expert traders to guide you through the process and help you make the right trading decisions for a profit.

Trading services such as FoolProof can also assist you in staying on the right side of the market. The service includes insights about trading strategies from veteran investors and a thorough trade plan.

For only $97 a month, FoolProof gives you trade alerts throughout the week based on the market conditions and guides you on how to place an order and manage risks. FoolProof also offers a 14 days trial to try it before you pay for a subscription.

Key Benefits and Risks of Investing in Stocks

Owning stocks from different companies can maximize your income from stock trading, help you build your savings, and protect your money from inflation and taxes. Moreover, investing in companies with consistent growth and increased earnings can develop your wealth over time.

Since stocks are liquid assets, they can be easily converted to cash. As the economy grows, the companies' earnings also rise, and as a result, the stockholder’s income also rises. When it comes to risks, there is no guarantee that you will make money on a stock at any point in time, as no one can predict how a stock will perform on the market with certainty.

There are no guarantee prices will go up or that a company will continue to stay in business. Hence, you need to be comfortable with the risk when you buy and sell stocks if you don’t plan to invest for the long term.

Final Thoughts

If you are wondering how to stock trading, start your trading journey with proper knowledge and the necessary financial tools. Learn how to analyze the market, manage risks, and test the strategies before you begin trading.

The start of the trading process can be very challenging, but once you find your trading style, such an investment can become very rewarding. However, to do so, you will need a solid investment plan that works for you and ensures that you stick to it throughout the trading process.