The popularity of stock trading is constantly growing, attracting new stock traders every day, so it’s no wonder you’re interested to learn how to invest in stocks and make money. Learning the different strategies and types of stock will make this whole thing very exciting for you, and you’re in the right place to discover more.
First, don't believe when someone tells you that stock trading is the same as gambling. Stock trading has nothing to do with luck. To be successful in stock trading and start making money, you should have proper knowledge of the stock market.
Nonetheless, if you don’t, don’t let that discourage you. You must learn the basics to join the stock market and succeed in the stock trading world. Thus, in this guide for stock trading for beginners, you’ll find that and much more.
Stock Trading for Beginners Guide
At first glance, stock trading seems complicated, but you don’t have to be an expert to start, so let’s begin with the basics.
Learning what stocks are, what exactly stock trading is, and the different types of stocks will allow you to understand what you’re doing. Also, once you understand them, you can start learning more and upgrading your knowledge, so let’s begin.
What are stocks?
Stocks are the shares of the ownership of a company, or simpler, one stock is a part of that ownership. Their companies issue them to gain finances to fund their businesses.
When you buy a stock in a public company, you acquire a little part of that company. If you own the majority, you control the business.
Before deciding which stock to buy, you can easily see how that stock has acted in the past. But what about how the stock will act and perform in the future?
Well, this part is tricky, so you must learn to analyze things when it comes to this type of trading. Also, learning and putting time into analyzing the company is very important.
Nevertheless, as time passes, you have a great chance to develop a feeling for these things.
What is stock trading?
Stock trading is selling and buying stocks of different companies. That exchange is made on the stock market. By buying a stock, your money works for you because the value of that stock might increase. The value might also decrease, so that's a risk you should be prepared for and willing to take.
The goal is to make more money by buying the stocks of the companies when the price is lower and selling them when the price gets higher before their worth drops.
Active trading is when you place many trades per month. Usually, active traders place over 10 trades monthly, but you, as a beginner, should start a lot slower.
Most importantly, you must learn to protect yourself from loss. Even so, it's hard to completely avoid it, so you can at least learn to control it and lower the chances for it to happen.
Types of stocks
There are different types of stocks, but let's take a quick look at the most common ones. Knowing them is enough to get you started and make it easier to decide which type suits you best.
Common and preferred stocks
Common stocks are the most used stocks, providing you with tiny company ownership. Common stocks give the holders the right to vote at the company's general meetings and are the perfect long-term investment.
The preferred stocks don't give you a right to vote, so you won't have a say when the future of that company gets discussed. However, they’re more stable compared to the common stocks.
Growth stocks
Instead of providing the shareholders with dividends, the company invests the money from the sold stocks into its development. This way, the company can grow, hence the name of these types of stocks.
If you own growth stocks, the only time you’ll be able to make money is when you sell those stocks. Nonetheless, that’s only possible if the company you’ve bought those stocks from also grows. If that doesn’t happen, you’ll be able to sell those stocks for a lower price than what you’ve bought them, resulting in your loss.
Value stocks
Value stocks sell for a lower value than what they're actually worth. You can think of these stocks as discounted stocks.
The tricky part with these types of stocks is that there is a high chance that their value will grow in the future. That might or might not happen. However, if that happens, you’ll effortlessly earn more money, which is why people love buying them.
How to Trade Stocks
Now let’s see what you need to know to start trading stocks.
Define your goal and risk tolerance
The most common goal of investors is to increase the money they own. So do you want to achieve the same? Or maybe you have something else in mind?
If you don’t know, take your time. Having a clear goal will keep you focused, so it’s good to know your goals to be able to accomplish them more easily.
Risk tolerance is the limit of how much money you're going to allow yourself to lose. Thus, set it before you start investing.
Let's face it; there's always a possibility of losing your money, no matter how you decide to invest it. That’s why you should never invest more than what you’re prepared to lose.
One more thing. Knowing your risk tolerance, you’ll also know which stocks to buy and which to sell.
Practice first
If you've never tried stock trading, the best thing you can do to get familiar with the process is to use an online tool to practice without using real money. Stock trading for beginners can be very easy if you start with practice before doing the real thing.
To do that, you can use a stock simulator, as you can find plenty of them on the Internet. The stock simulators will provide an authentic stock exchange process, so you'll see how everything works without wasting any real money.
Choose a stock trading platform and open a brokerage account
With so many online trading platforms, it can be difficult to choose which one to use, so look through some of them and see which one has the simplest interface. Remember that when using a stock trading platform, you must pay for its services.
So, you must get informed before opening your account. You might be charged an inactivity fee, maintenance fee, monthly or annual fee, etc. Therefore, ensure you get all the info before opening an account, so you'll know what to expect.
Having a brokerage account is a must! How else would you trade your stocks without having one? This type of account works like a bank account, so don't worry; it’s not as complicated as it might seem. Everything on the brokerage account is yours, so you can sell your investments anytime.
Opening a brokerage account online is the easiest way to get one. All you’ll need to do is to fulfill an application that won’t take you more than five minutes to complete. Of course, you must be of legal age, meaning you must be over 18 years old.
Follow the prices
The primary factor you'll focus on is the stock prices. Following the changes in the prices will allow you to make the best decisions regarding your trades.
For example, if you expect the price of a certain stock to rise, then simply try to buy it. If this is true, you'll make a profit; if it doesn't, you'll lose.
Moreover, if you have a stock whose price you expect to fall, sell it. This is a risk because if the price rises, you'll be making a loss. However, if it falls, you'll gain a potential profit. Don't give up! With time you'll become a better trader.
Choose a trading strategy
Another important thing that you, as a stock trading beginner, should do, is choosing a trading style. There are various trading strategies, but let’s look at those used the most.
Day trading
Day trading is short-term stock trading that consists of buying and selling a stock on the same day. This trading is very popular, especially among beginners, because they’re impatient and want everything to happen quickly.
Don't be like that. Always remember that short-term trading can cost you much more than the long-term.
Now, you're probably wondering how that's possible. Well, first, buying and selling stocks on a daily basis is expensive.
Secondly, you still need to gain the required experience in the stock market, and you still need to learn how the stock market works, so this type of stock trading might backfire.
Day trading usually results in not-so-big gains. Nevertheless, if you're looking for a quick few bucks, feel free to try it.
Swing trading
Swing trading is used to make a profit based on price swings. This type of trading includes making trades over a couple of days or weeks and tracking the swings of the price, which might result in a maximized short-term profit.
This type of stock trading is the best strategy for beginners because it doesn't require many skills, time, or experience. So, if you don’t know where to start, feel free to use the swing trading strategy.
Positional trading
The positional trading strategy is quite different from the other strategies because this is a long-term strategy that, if you master it, might be highly profitable.
This positional trading strategy will require you to buy and hold stocks for longer, or at least until their value increases. That’s why this is a long-term stock trading.
You can try it, but this stock trading strategy is intended for more experienced traders. That’s because they have more experience to sense if that stock will become more worthy.
Momentum trading
Momentum trading is another online stock trading strategy that can be profitable, but only if you know how to use the momentum of the stock in which you're interested.
Because the value of the stock might increase or decrease, you should be able to correctly predict what will happen.
The idea behind this is to buy a stock whose price is increasing and sell it when you think it has reached the highest growth point.
That might seem impossible, but as your knowledge and sense of the stock increases, you’ll be able to also use this trading strategy, so remember it for later.
Ask for guidance
The best way to get involved in stock trading is by using the service of a reliable company, and we've got just the right one. FoolProof Options is a company that will teach you how to swing trade.
The services it offers are perfect for beginners but also more experienced traders. That's because, behind this name, a team of Wall Street experts will guide you and point you in the right direction.
FoolProof will provide you with a detailed trade plan, and you’ll receive notifications about every important change regarding your stocks. All this will cost you only $97 plus a money-back guarantee, so take advantage of everything this website offers.
What to Consider Before Starting
There are a couple of things worth mentioning that you must remember before starting stock trading. Knowing and applying them can make a significant difference in your trading game.
Diversity
Being diverse is the best way to protect yourself and your finances. That means that the more different companies you invest in, the better.
Of course, you must start slowly, but as time passes and you keep learning, you’ll start getting interested in different types of stocks.
By doing this, you'll significantly lower the risk of ending empty-handed. It's also good if the companies you choose are from different sectors.
Therefore, you'll not only protect yourself from great losses, but you'll also create better opportunities to increase your income. Prepare to invest a good portion of your time because to be effective, you'll also be required to constantly research new industries and learn new things.
Don't listen to other people's opinions
Be careful and think well before doing anything. Rely only on yourself, your gut, and your logic. Don't let the words of others dictate the management of the stocks you own. You own the stocks and know best what to do with them.
We know that it's not so easy to turn your back on a tip, but you must do that when it comes to dealing with stock trading. Although you're a beginner, do your research.
Use the strategies that make the most sense to you. Draw your conclusions. The stocks are yours, the same as the responsibility and decisions related to them.
Control your emotions
Sometimes, dealing with the stock market can be intense, and people tend to lose their calmness. You’ll soon experience this, so remember to stay calm.
There’s no doubt that the stock market will test your nerves, but you can control the damage by staying calm more than losing your nerves.
Don't let your emotions get in the way of making decisions. So what if you've bought a stock whose price has decreased? That doesn't mean you should buy another more expensive one in the heat of the moment. Stay calm and take your time to make the right decision.
Control your emotions, and don't act impulsively. Even if you're losing money, gather your thoughts and emotions and think of a new approach to improve your losses.
What to avoid
As a beginner, it's best to know from which stocks you should stay away. For example, only get involved with stocks you understand. If you're unfamiliar with the company and its activity, it's best to avoid getting involved.
Do not, under any circumstances, fall in love with a particular company. That might confuse you, make it difficult for you to make the right decision, and even result in losing your money. So, stay alert and notice the red flags. That's the best way to avoid falling into this trap.
Conclusion
In the end, what’s important is to remember that you must follow the changes in the stock market and not walk away poorer. If you're serious about starting with stock trading, being successful, and making profits, you must keep up to date and follow the changes daily.
Over time, you'll gain a greater understanding of the stock market, making you more prepared and successful.
This is enough information on stock trading for beginners. Nevertheless, don’t forget to continue reading. There’s always more to learn to improve your game, so keep up and always stay informed!