They’ve been around for hundreds of years, and if you are a social media user, then chances are you’ve seen at least one “How to Trade Stocks” course advertised. Stocks and stock traders have been glorified for as long as they have existed. There’s no shortage of social media influencers promoting their “mentorship” programs, teaching others how to trade stocks online.
Success stories of average people who have learned how to trade stocks and then turned their pennies into fortunes flood the internet every day. We’re not here to expose who’s a real trader or not. However, if you have ever wondered how to trade stocks online, here’s how to get started.
Before You Trade
Before blindly jumping into the market, there are essential foundational rules and best practices that you must take into mind. You need to understand these guidelines if you want to learn how to trade stocks effectively. To start, the actual definition of a stock, which is a percentage of equity or share of a company.
Below you can see a few trading styles based on the least amount of experience to the highest.
Someone who is brand new and is still learning how to trade stocks may be best suited to buying and holding stocks for a longer period of time.
A Swing Trader: Someone who is usually more experienced and feels comfortable placing frequent trades. Compare this to others who employ the buy and hold strategy. A swing trader may buy a stock and then wait a certain amount of time. It could be days, sometimes weeks and months before they feel like the time is right to sell.
Day trading: Known as the riskiest type of trading, but also the most lucrative. “Day Traders” tend to be the most experienced and seasoned traders. They are known to place multiple trades throughout the day.
When you are first starting out, it’s good to know that even the most experienced stock traders typically do not make all of the right trades. While volatility is expected on your investment journey you must create a plan and determine your risk level.
The most successful traders are not only mentally strong, but they also possess a very high-risk tolerance. This doesn’t mean that they are willing to watch their portfolio go to zero. However, they are ready to risk losing in order to win. Would you be willing to risk losing 5 trades in a row without knowing if number 6 will be a win? If you are willing to look at every trade as a learning lesson, regardless if it is a win or loss, then learning how to trade stocks may genuinely be for you.
A golden rule in trading that can also apply to many financial ventures in life is that you should only risk what you are willing to lose. Your comfort level will grow with the more experience you gain over time, and so will your preferences. Many traders start off on user-friendly platforms and then move on to more complex ones as they become seasoned traders.
There are many different tools you can leverage as a trader, which includes what broker you will use to place the trades. A broker can either be a person, referred to as a stockbroker Or perhaps an online broker who is simply the platform one would use to place trades free from assistance.
Having the right tools can make the difference between a successful and unsuccessful trade. As a newer trader, this means using tools or platforms that you can understand.
It happens all too often, where a new trader will go for the fanciest trading tools that contain the most technical charts, an intricate layout, and all the bells in whistle. While in reality, when you are first learning how to trade stocks, this is not reasonable. This goes back to your experience and comfort level. We’re sure you’ve heard of the K.I.S.S. method, right?
We are literally one step away from getting started. Professional traders always have a short- and long-term goal in mind while trading. They combine multiple factors with helping to determine this, including the ones we’ve covered, like which broker or online broker they will use and for how long.
A good trader is conscious about their experience level and capital, or total money they are willing to invest. Defining goals for the weeks, months, and even years to come will help you have a target to aim for. You know the saying, “If you aim at nothing, you’ll hit it every time.”
How To Get Started In 4 Steps
All right! If you were able to make it this far without jumping ahead, then give yourself a pat on the back, you deserve it. Having patience is key while learning how to trade stocks. We have our goals. Now it’s time to apply some action to help us achieve them.
Step 1 – Determining Your Capital
Whether it is $50 or $500, you plan on starting with, come to a concrete conclusion. This will help determine what future steps and actions will need to be taken.
Step 2 – Gathering Documents
Regardless if you plan on using a stockbroker or placing trades yourself, there will be required documents needed to open an account. Materials such as your license or birth certificate, possibly a bank statement, and or utility bill.
Step 3 – Choosing A Broker
Most brokers have a minimum account opening level that starts around $500. Factors such as self-trading, comfort level, trade fees, and trading tools are important to take into consideration while making a choice. There are multiple free trading platforms online, but these do offer trading assistance by a licensed professional. You can always work with a stockbroker, but of course, this would entail trade fee’s which could significantly affect your overall account balance and buying power.
Step 4 – Getting Familiar With The Process
Once you have decided which path is best for you, whether that’s placing trades independently or with a stockbroker, be sure to ask about or research the best practices for that platform. Transfer times, FAQ’s, becoming comfortable being able to use their graphs, and so on. Some platforms even have a test mode that you can use until you become acquainted with everything.
Making Your First Stock Trade
Before you can place your first trade, you have to know what you will be trading. This comes from researching companies and the current market conditions. You can start by researching companies whose products you are familiar with or even use. Technical analysis is techniques applied to charts that help traders determine when it is an excellent time to buy, sell, or hold. Once you’ve done your due-diligence the last step is placing your order.
Step 1 – Understanding Market Conditions
You may have heard of the terms “Bull and Bear” markets. These terms are used to describe the condition of the market in regard to price fluctuations. a Bull market describes a market that is consistently and more often rapidly trending upwards in price. It is called a bull market since a bull strikes moving his head upwards.
A bear market is the reverse of a bull market when the price is consistently trending downwards, where massive selloffs can occur. A bear attacks by striking downwards on his opponent, hence the term bear. Most traders follow the saying, “the trend is your friend.” Buying in a bull market and selling before the bear market comes is a common goal among traders.
Step 2 – Researching Companies
If you don’t know where to start in your search for the perfect company stock to invest in, start by taking a look at the products you frequently use or like. Whether that is a car, food, restaurant, clothing brand, technology, and more. Do they have a new product being released? Are they currently gaining media attention? Is it negative or positive attention? Do they have a social media presence or a following at all? Looking back on their past performance may give some insight into their future performance.
Step 3 – Technical Analysis
Economics, weather, politics, world events, and so on are all major determining factors that affect stock prices. These conditions, combined with techniques like RSI, Elliot Waves, and Fibonacci retracements, can help you in your investment decision.
Step 4 – Placing Your Trade
The most straightforward type of trade to place is a market order. A market order buys your prospect stock at the same price it is currently trading for on the market. For example, If you are looking at the stock called “A,” and it is trading at $1 per share, if you place a market order for 1,000 shares, the price of the order will be $1,000. 1,000 shares executed at the market price, which is $1, will be $1,000.00.
Gain Experience and Expand Your Portfolio
Logging your trades, recording the date, time, price, shares, why you initially bought the stock, and your prediction of the future price are all great habits to create early on. This will keep you accountable. The more trades you place, the more experienced and more extensive your portfolio will grow, giving you a better understanding of your own psychology and possible changes that may be needed in your techniques or mindset.
Options trading still involves stocks or equities. However, instead of directly purchases a share, you are buying a contract that gives you the right to trade those shares at a certain date and time for a specific price. If the price of “A” is at $1.00 in January after a solid bull run, but you believe that the price could retrace down to $.80 by February, you may purchase an option to sell “A” at $0.80 in February.
ETF’s, or exchange-traded funds, track funds similar to indexes that are made up of multiple stocks but are traded under one investment fund. This allows investors to diversify their initial investment across various stocks instead of having to choose one at a time. Some ETFs are tied to specific sectors. A single ETF can represent hundreds of stocks.
ADRs or American Depositary Shares are used to purchase shares of companies that reside outside of the US. Foreign companies who do not take the time to register their company with American regulators cannot trade on American markets. In this scenario, a US broker will purchase the shares of the foreign company on their exchange.
These shares are then delivered to a custodian bank. The broker will then have another bank, a depository bank, issue shares called receipts that are based on the number of shares deposited to the custodian bank. These receipts can now be traded on the US markets or OTC, over the counter.
You Are Now An Intelligent Investor!
We covered a lot, so if you are still feeling a little uncertain, no need to worry. Even the most experienced traders learn new lessons every day. Plan, and stick to it. Try your best not to become emotional whether you just won or lost.
There are lessons to be learned in every trade. You have just successfully learned how to trade stocks, but keep in mind that a stock trader is never done learning. There is always new information and new perspectives to be mastered. At least now, when your friend asks you how to trade stocks online, you will be confident in knowing the answer.