How To Start Trading Stocks
If you'd like to know how to start trading stocks, there are a few pointers which can set you on your way. As a beginner, you must first recognize that you are the easy money for every other predator in the market. There are countless styles of trading, and your ultimate goal should be to find the trading time-frames and risk levels that bring you the most rewards. Some traders initiate huge positions for seconds and then exit. Some ease in and out of their trades slowly over months and years.
To start trading stocks, you will need:
- A brokerage account
- Knowledge about how the stock markets operate
- Understanding of company valuation principles
Before you start trading stocks, trade on paper. The web is littered with portfolio tracking tools and "paper trading" contests. If you are not disciplined enough to trade in a simulation first, doubtful you are disciplined enough to make money in the market. Paper trading does not bring the same emotional response of money on the line, but it can teach invaluable lessons about the movements of markets and stocks over time.
- Educate yourself about technical analysis. Technical analysis (TA) uses graphs, charts, and often complex mathematical formulas to provide a slight edge on the market to some traders. TA is often disparaged as "reading tea leaves", but it can be as simple as drawing a line underneath a rising price. Moving averages are a common technical term. TA may not provide an edge for you, yet it still helps to understand what prices other traders consider important.
- Learn the concepts of fundamental analysis. Fundamental analysis regards the valuation of companies which offer shares in a given stock. You will help yourself if you grasp some fundamental concepts about valuation. Earnings per share and dividends are both core fundamentals. Stocks can remain undervalued and overvalued for a long time, and earnings numbers don't always tell the whole story.
- Open an account with a stock broker. In order to start trading stocks, you will need a brokerage account. Your stock broker provides you access to shares on the stock market. There are thousands of brokers out there who cater to every niche. If you plan to trade, pay attention to transaction costs. The commission that brokers charge for a buy or sell order is how they stay in business. The higher the frequency you plan to trade, the lower you want these charges to be.
- Emotion is a significant factor in trading. Fear and greed are emotional responses to movements in personal valuation. To start trading stocks, you must realize mass psychology brings about wide swings in stock prices. You truly survive on your wits trading stocks, but you also have nobody else to blame if things go wrong.
- Trading too often is a common way to lose money. Wait for the best opportunities.