In this guide, we will look at stock trading for beginners, delving into how to buy stocks, sell them, and analyze many of the features used when trading. In addition, we’ll go over:
❖ Stock-buying methods;
❖ Avoiding common stock trading mistakes;
❖ Selecting a suitable brokerage;
❖ What to look for when researching a stock;
❖ Executing trades;
❖ Portfolio-building recommendations and much more.
Nowadays, investing in stocks doesn’t have to take place on the New York Stock Exchange (NYSE) floor; you can do it from the comfort of your couch on your phone. However, despite the ease of buying a stock in this day and age, it’s crucial to be well-versed in what you’re doing.
For this reason, we’ll take away the intimidating side of trading and teach you how to get started showing you how to trade stocks in order to optimize your profits while reducing your costs.
Lastly, this guide will primarily focus on investing in actual stocks instead of a contract for differences (CFDs) since you do not own any actual shares.
Why start investing
Investing is the opposite of spending money in the present; it saves money for the future in the expectation that it will grow over time, but equally important, it also carries the risk of losing money which is why it’s important to utilize all of the tools at your disposal when you invest.
The notion with investing is that money or capital is invested with the hope of growing your money over time; this is done by putting money to work in one or more types of investment vehicles.
One such investment vehicle is buying stocks. Ideally, through buying stocks, you will be able to increase your money and outperform inflation over time. As you move closer to your financial objective, you can gradually reduce your stock holdings and increase your bond holdings, which are typically more secure.
The easiest and most common approach for beginning investors to get exposure to stocks is through the stock market. Investing in stocks is simply purchasing small shares of ownership in a publicly-traded company.
By investing in these modest shares, you’re hoping that the firm will grow and prosper in the long run, which is the aim. As a result of the company’s growth, in the future, other investors may be willing to pay more for your shares, and if you decide to sell them, you’ll be able to make a healthy return.
Important: If you’re interested in learning more about putting your money to work be sure to check our two essential guides on best investment books and stock trading books of all time. Alternatively, read our guide explaining what is investing to know where to start.
Commons mistakes by novice investors
An inexperienced investor is prone to making costly errors due to overconfidence, impatience, or even naiveté. However, these blunders may be quite expensive; therefore, learning how to avoid them is highly recommended.
Before you begin investing, it is essential to obtain some knowledge in order to maximize your profits and minimize your losses. After reading this guide, you’ll have a better sense of the mindset you’ll need, the expectations you may have, and the techniques that will be most effective. Here’re the most common mistakes made by novice stock traders:
- Expect to get rich overnight: It is unrealistic for newcomers to expect to see significant increases in their portfolios overnight, although this sometimes happens in the stock market.
- Lack of time spent for Technical and Fundamental analysis: It is more likely that you will wind up as a gambler rather than a trader if you do not have the proper research mindset in place. In order to make an informed investment decision on any company, you must first understand how the firm makes money, what its competitive advantages and risks are, how fiscally sound the company is and how promising its future appears to be.
- Not having a proper trading plan: Plan your trade – trade your plan. Professional traders have their set up position with entry, exit, and stop losses set in mind before entering a trade and executing it. Unabated enthusiasm and even greed will drive far too many novice investors (and many seasoned investors, as well) to purchase shares of businesses, with little consideration given to whether the stocks are undervalued or overvalued.
- Following the wrong sources: For many new investors, it’s easy to place their trust in financial TV experts, YouTube tips or stock picks from a friend or colleague. Anyone may recommend a stock, but you seldom know the recommender’s track record – and even the best investors make mistakes from time to time; hence, in the long term, it’s highly advisable to learn the stock trading ‘magic’ yourself.
- Buying Penny Stocks: Traders may purchase Penny Stocks for as little as $5, with many of them trading for as little as $1. For new traders, the appeal is that you can get a lot of shares for not much money. However, it is common for these stocks to sink to zero, and just a handful soar. It’s also worth noting that unprofitable businesses may easily be manipulated by scammers hype up online “pump-and-dump” in schemes.
- Not diversifying: Not diversifying enough is another common investing mistake. Owning ten energy companies and ten electric vehicle (EV) companies is not diversification. A drop in the price of oil or gas could change the fortunes of half your portfolio, as could chip shortage that could put factory production on hold. By investing in a range of industries and a range of countries, you can mitigate the risk.
- FOMO and buying stocks at all-time highs: Purchasing shares at a downturn in the market may result in significant gains in the future. It is better to avoid succumbing to the fear of missing out (FOMO) and buying shares at all-time highs. At times, exercising restraint and patience is the most sensible course of action. However, this does not imply that if the value of a certain stock falls, you should buy more. Do some research before purchasing any further shares.
- Not paying attention to investments: Even if you want to be a buy-and-hold investor, you shouldn’t ignore companies you’ve already bought. Keep up with them if you want to get the most returns on your investments. Most recommend doing so at least once a quarter. Look at their quarterly financial reports to see how the business is performing and what the management says about it.
How to pick your stock trading broker
An online brokerage account is all that’s required to start investing in stocks, mutual funds, and a range of other assets; hence, as soon as you have determined what sort of investor or trader you want to be, you are ready to choose a brokerage account that is best for your needs.
Before opening an account with a brokerage company, examine all the elements that matter most to investors.
For example, you should look into:
- How credible and safe the broker is;
- What are the fees (trading commissions, account fees);
- How easy it is to execute a trade on the platform (UX interface);
- Does it offer alternative investment options like stocks, mutual funds, and a wide range of commission-free exchange-traded funds (ETFs), etc.;
- Minimum balances and deposits;
- How easy it is to find helpful information on the platform;
- Customer support reputation;
- Does the broker offer a free demo account;
- A wide range of trading tools and indicators to use;
Note: When it comes to online trading platforms, you may open a new account in a matter of minutes if you do not already have one. Opening a brokerage account to trade stocks does not obligate you to invest your money right away but instead gives you a choice to do so when you’re ready for it.
However, after your brokerage account has been created, you can start investing in the stock market by depositing money into the online investment account, which you can later use to purchase stocks, ETFs, or other desired investment products.
Three best stock trading platforms for beginners
Below you’ll discover a detailed list of the top three commission-free brokers that are highly credible and suited for beginners. These platforms are specifically oriented towards providing an easy and convenient way to invest and trade stocks. Furthermore, these brokers are easy to onboard even via your smartphones and are suitable beginner-friendly options.
1. Interactive Brokers (Best for U.S.-based users)
Interactive Brokers (also known as “IBKR” or “IB”) is one of the world’s largest and most recognized online brokers.
The broker focuses on extensive market access, competitive pricing, and efficient trade execution. Global exchange markets are available in the Americas, Europe, and the Asia Pacific for clients to invest in over 200 nations and territories.
- IBKR facilitates trading with stocks, options, futures, forex, bonds, and funds on 135 different marketplaces from a single integrated account.
- Residents and institutions in the United States also have access to cryptocurrency trading with the broker.
- Interactive Brokers also offers a wide range of account types to its users, including individual, joint, retirement, trust, family, and institutional.
When it comes to fees, Interactive Brokers has a reputation for low fees and commissions and offers two types of accounts for individual investors: IBKR Lite and IBKR Pro.
- IBKR Lite has no account minimums and no inactivity fees for retail users trading publicly listed stocks and ETFs in the US whilst also offering zero commission on transactions. Thus, IBKR Lite is a more user-friendly platform for new investors.
- IBKR Pro is for experienced investors and traders. For stocks listed in the US, Interactive Brokers charges different forms of commissions subject to a set pricing structure.
Tier: The company has low broker commissions and inexpensive exchange, regulatory, and clearing fees. The IB commission per share for all US stocks, ETFs, ETPs, and warrants is $0.0035, with a minimum of $0.35 and a maximum of 1.0% of the transaction value for under 300,000 shares.
Fixed: Shares are priced at $0.005 per share, with a minimum transaction value of $1.00 and a maximum transaction value of 1%; all exchange and regulatory costs are included in the price. On all sales of US stocks, ETFs, and warrants, transaction fees are passed on to the stock buyer.
2. DeGiro (Best for Europe-based users)
DeGiro is the first pan European broker, and retail investors may now take advantage of the firm’s competitive commission structure, which is now available in 18 European nations.
As a result, DEGIRO has swiftly risen to become one of the most important brokers in Europe by providing cutting-edge trading to its 600,000 clients who benefit from reduced commissions and global exchange access.
Clients can invest in US stocks and many ETFs without paying a commission and get the benefits of competitive fees. The broker allows you to maximize your investments with its pricing structure.
For the most active markets, there are zero commissions and no custody or inactivity fees to pay. In addition, there is a straightforward price schedule as well as a flat fee structure.
Stock trading fees are as follows:
- US stocks: €0
- London Stock Exchange: £1.75
- Irish Stock Exchange: €2
DEGIRO also imposes a fee for establishing trading possibilities outside of your local market; this charge is used to give access to a large number of exchanges; this fee is also applied to individuals who use these exchanges.
Excluding the London Stock Exchange, you will pay 0.25% of your entire portfolio value (up to €2,50) each year for the connection fees.
- London Stock Exchange: €0.00 (positions and transactions for home market)
- NASDAQ: €2,50 (transactions)
- Euronext Derivatives: €2,50 (transactions)
- NYSE: €2,50 (positions)
- Total connectivity costs for the year: 3 x €2.50 = €7.50
3. Revolut (Best option for beginners globally)
Using a Revolut app, you don’t have to pay any commissions to invest in US stocks. You may purchase and sell stocks with ease with this app. Many new investors already appreciate this feature because it is one of the simplest methods to begin investing in stocks and even receive dividends (to know more about dividends read our complete dividend investing guide).
Additionally, Revolut’s fractional share purchase option allows you to start investing and trading fractional shares in companies ranging from Apple to Zoom with as little as $1. The Revolut app now allows users to purchase and sell over 800 US stocks as of January 2021.
There are no hidden fees with Revolut. Outside of the one free trade per month for Standard plans, three free trades for Plus plans, and five free trades for Premium plans, Revolut charges a commission per trade, whereas Metal customers enjoy unlimited commission-free trades.
Although Revolut offers commission-free trading, there are other fees involved when using the trading account, as illustrated below:
- The commission fee: is 0.25% of the order total, whichever is larger, or the fee for the respective nation; for example, Britain charges £1, while countries in the Eurozone charge 1€. This charge will be applied after the order is received;
- Cost of custody: Currently 0.12 percent / 12 bps (on an annual basis) of the market value of your assets held by the Third Party Broker in your account with it, charged monthly,
- Regulatory fees: For every $1,000,000 of principal sold, the SEC charges a fee of $5.10, calculated to the nearest cent.
Note: For those interested in stock trading via Revolut – check our step-by-step guide on how to buy a stock within the Revolut app. The guide demonstrates how to buy Tesla stock in seven easy steps, but the same methods work for all other stocks.
How to research and choose stocks
Researching a stock is extremely useful, of course, since it helps you determine if a firm is worth adding to your portfolio or not by evaluating its financial performance.
Plan your trades by studying the fundamental and technical analysis of the stock.
Technical analysis (TA)
The technical analysis evaluates assets and identifies trading opportunities by examining statistical trends from trading activity, such as price movement and volume patterns found on price charts.
Using historical trading behavior and price fluctuations, technical analysts predict future price movements for a security. While technical analysis looks at past price patterns and stock movements, fundamental analysis focuses on the company’s financial health in the here and now.
When determining a stock’s worth, the technical analysis examines price and volume rather than business results like sales and profitability. Furthermore, technical analysis techniques are used to examine how variations in price, volume, and implied volatility are affected by supply and demand for an asset.
Lastly, the aforementioned analytical tool is commonly used to produce short-term trading signals using a variety of charting tools. Still, it may also aid in assessing a security’s strength or weakness concerning the larger market or one of its fields. This information helps analysts in refining their overall valuation estimates by providing more relevant data.
Technical analysts generally look at the following main categories of indicators:
A market or asset’s price trend indicates the overall direction of the market or asset’s price.
Trendlines or price action in technical analysis show:
- Uptrend: The price makes higher swing highs and lower swing lows for an uptrend.
- Downtrend: The price reaches lower swing lows and lower swing highs for a downtrend.
While most traders follow the trend, contrarians look for reversals or opportunities to trade against it. There are ups and downs, whether it’s the stock market, the bond market, or the futures market.
Below the downtrend is indicated by the purple horizontal line, and the blue horizontal line indicates the uptrend.
Using tools such as price action, trendlines, and technical indicators, you can determine when a trend is reversing and be alerted to it. Three trends indicate the overall direction of the price movement:
- Market price trends
- Asset price trends
- Metric price trends
Meanwhile, rising data points, such as higher swing highs and lower swing lows, characterize uptrends. However, downtrends have dropping data points, including lower swing lows and low retracement levels at the beginning and conclusion of the trend.
Price patterns are frequently used in technical analysis to identify transitions between rising and declining trends. A price pattern is, by nature, a recognized structure of price movement that is defined by a sequence of trendlines and curves.
A reversal pattern happens when a price pattern indicates a shift in trend direction. In contrast, a continuation pattern occurs when the trend continues in its present path after a short reprieve.
Many traders choose to trade in the same direction as the trend, hoping for a continuance of that trend to bring them profits. However, it’s important to note that trend lines can illustrate the general direction of a trend; the relative strength index gauges how strong it is.
Technical analysis relies heavily on chart patterns, but mastering them is a process that takes time and practice. Patterns on a price chart assist you in predicting what prices will do in the future based on the past.
There isn’t a single “best” chart pattern that they’re all utilized to illustrate distinct trends in a wide range of industries. Candlestick trading frequently uses chart patterns, which makes it a little simpler to see past market openings and closes.
In volatile markets, certain patterns work better than others. Some patterns function well in a bullish market, while others are better suited to a bearish market.
The following are just some chart patterns, to name a few:
- Head and Shoulders: Investing professionals consider the head and shoulders chart one of the most accurate patterns for predicting trend reversals. An upward trend is nearing its conclusion when the head and shoulders chart depicts a change from bullish to bearish.
- Double Top: If the price has been moving up for some time, then a double top pattern will emerge. In technical analysis, “tops” refer to price levels that can’t be broken. After the price reaches this level, it will take a slight bounce off it before returning to re-test it.
- Double Bottom: This pattern will appear when two valleys or “bottoms” have developed after a long decline. This indicates that the selling pressure is going to end, and a reversal is likely to begin.
- Rounding Bottom: The Rounding Bottom is a long-term reversal pattern best suited for weekly charts representing a lengthy consolidation period that transitions from a bearish trend to a bullish trend.
- Cup and Handle: A price chart technical indication that looks like a cup with a handle is regarded as a bullish signal, with lower trade activity on the right side of the pattern.
In trading, volume refers to the total quantity of a particular asset exchanged during a given period. As a result, volume is frequently shown alongside price data as crucial market activity and liquidity measurement.
There must be a buyer and a seller for every contract exchanged for the transaction to take place – each transaction is a separate exchange and will contribute to the trading volume. It’s important to know that the trading volume does not include the number of actual transactions; instead, it counts the number of assets exchanged.
Moving Averages (MA)
In order to get a trend line, a moving average takes the price points of an instrument over a defined time and divides them by the total number of data points. Traders like it because it may assist in predicting the current trend’s direction while at the same time reducing the influence of random price fluctuations.
The simplest MA is the Simple Moving Average (SMA), which is just a computation of the average price of data collection over a certain period. For instance, you would divide the past ten days’ data by ten to calculate the SMA for ten days.
By examining the historical price movement of a stock, a moving average may help you determine where support and resistance are located.
Support and Resistance Levels
Support and resistance levels can provide traders with additional information about the strength of a price trend. Both support and resistance refer to price chart levels that appear to constrain market movement.
Resistance levels are those at which prices consistently stop climbing, while support levels are those at which prices consistently stop falling. In a buyer’s market, the price will rise if there are more buyers than sellers; conversely, the price will fall if there are more sellers than buyers.
The more frequently a price reaches either level, the more accurate that level is in predicting future price changes. Traders typically find that both levels become psychological barriers whenever they purchase or sell after reaching a certain level.
For instance, if a price reaches or surpasses a support or resistance level but immediately reverses course, it only tests the level. The price may rise or decrease until a new level of support or resistance is found if a price breaks through a certain level for an extended length of time.
Note: To learn more about the most popular stock trading patterns, be sure to watch the video below.
Watch: Top 10 key chart patterns to be effective at trading by Trader DNA
Plan your trades by studying the fundamental and technical analysis of the stock. Fundamental analysis is the term investors use to describe the evaluation of a company’s financials, leadership team, and competitors to determine if it merits a place in your investment portfolio.
Besides measuring the intrinsic worth of an investment to determine a stock’s value, fundamental analysis looks at:
- General public sentiments and press around the stock;
Conversely, the stock is also evaluated using technical analysis, which looks at the stock’s price and volume chart to anticipate future potential performance.
In order to get started with your research, you should look at the company’s financials. You may start by collecting together a few documents that firms must submit with the Securities and Exchange Commission (SEC).
There are so many statistics in financial reports that it’s easy to get lost; thus, it is best to focus on these key metrics below in order to learn about a company’s quantifiable inner workings.
Form 10-K: An annual report that provides independently audited key financial statements. You may look at a company’s balance sheet, sources of income, cash management, and revenues and expenses here.
Form 10-Q: This is a quarterly update on operations and financial performance.
For those who are short on time, your brokerage firm’s website or major financial news websites will provide you with a summary of the reports mentioned above as well as all the essential ratios. Imperatively, this data will allow you to compare a company’s performance to other potential investment options.
In general, there are six things in these reports that are worth keeping an eye out for:
- Net income;
- Earnings per sharePrice earning ratio (P/E);
- Return on equity (ROE);
- Return on assets (ROA).
All of the above will be discussed in more detail in the following heading, along with the reasons why they should be researched.
The net income is calculated after operating expenditures, taxes, and depreciation are deducted from a company’s revenue.
Revenue is the amount of money a firm earns within a specific period (usually a year or a quarter of a year). Operational and Non-operational revenues are sometimes used to describe revenue.
It’s essential to look at operating revenue when choosing a stock because it is derived from the company’s primary activities. Non-operating revenue is frequently obtained from one-time commercial activity, such as the sale of an asset, rather than ongoing operations.
Earnings per share
Earnings per share or EPS are calculated by dividing earnings by the number of shares available for trading. If you want to compare a company’s profitability with other firms, you may use this figure.
With that being said, it is worth mentioning that a company’s earnings are far from a perfect financial evaluation since they don’t reveal its capital efficiency. Some firms reinvest their profits back into the business, whereas others distribute them as dividends to shareholders.
Price-earnings ratio (P/E):
- A company’s trailing P/E ratio is calculated by dividing its current stock price by its earnings per share over the past 12 months.
- Forward P/E is calculated by dividing the company price by Wall Street analysts’ anticipated earnings, which gives you the forward P/E.
If you want to know how much investors are willing to pay for a dollar of a company’s current earnings, you may use this stock valuation metric.
You should also take into account that the P/E ratio is determined from the possibly incorrect computation of earnings per share and that analysts’ predictions can occasionally be short-sighted. As a result, it’s not a trustworthy statistic on its own and should be used along with the other research tools.
Return on equity (ROE) and Return on assets (ROA)
How much profit a firm makes on each dollar invested by shareholders is revealed by the return on equity (ROE), which is expressed in percentage terms. The shareholders of the corporation own the equity.
Return on assets (ROA) measures how much profit a firm earns per dollar of assets. A company’s yearly net income is divided by one of the measures to calculate each of these metrics. Traders may gauge profitability from these percentages as to the company’s ability to generate revenue efficiently.
A corporation might artificially increase its return on equity by repurchasing its own stock to lower the shareholder equity denominator.
How to Budget
Golden rule: Most investors query how much they need to start investing in stocks when it comes to budgeting but before budgeting, ONLY INVEST THE MONEY THAT YOU CAN AFFORD TO LOSE.
Set a budget
In truth, the amount of money required to purchase a single share of stock depends on how costly the shares are. It is possible to buy shares for only a few dollars or as much as several thousand dollars.
If you’re thinking about investing in stocks, you have a few options. You may invest in a variety of ways, depending on how thoroughly involved you want to be when it comes to picking and choosing the stocks you invest in.
Investing in individual stocks
Most experts recommend keeping these investments at a small percentage of your overall portfolio as a general guideline. Investing more than 10% of your portfolio in individual equities puts your investments at risk.
You might purchase one or two shares of a certain business to gain exposure to the stock market. Nevertheless, it is feasible to build a diversified portfolio out of a large number of individual equities, but it requires a substantial investment.
Additionally, mutual funds are unlikely to grow as quickly as individual equities as single-stock investments have the advantage that a well-chosen stock may pay off lucratively. Still, the likelihood that any one particular investment will make you rich is quite low.
Investing in funds – Mutual funds or ETFs
Most financial counselors prefer investing in funds; especially if you have a lengthy time horizon, you may put substantial portions of your portfolio into stock funds.
There are advantages to investing in mutual funds or occasionally known as equity mutual funds:
- They are already diversified. An investment portfolio dominated by mutual funds is the obvious choice for most investors, especially those investing their retirement savings, as it diversifies the risk.
- You can purchase small portions of several different equities in a single transaction with a mutual fund.
Index funds and exchange-traded funds are mutual funds that track an index, for example, buying the shares of the firms that make up the index. Your investment in the fund gives you a piece in each of the firms that are part of it. Furthermore, it’s possible to combine numerous funds to create a diversified investment portfolio.
If you want to invest in mutual funds but have a limited budget, an exchange-traded fund may be the best option for you. But ETFs trade like stocks, which means you buy them for a share price — in some cases as low as $100, whereas mutual funds generally have minimums of $1,000 or more.
Know more about ETFs and Mutual Funds:
An investor who trades through a brokerage must submit an order for the deal to be completed. The broker is an intermediary who receives a buy or sell order from a customer, and the buy or sell orders are then executed when they are filled.
With a brokerage account and a set budget in place, one can utilize the brokerage’s website or trading interface to buy the stock. You’ll be able to choose from a variety of order types, which will determine how your transaction is executed.
Buying stocks is now easier than ever before, and although the process may seem intimidating initially, we will give you guidance for each step of the way below.
What is a Contract for Difference (CFD)
A CFD is a financial contract that compensates for the differences in the settlement price between open and closed trades. CFDs enable investors to trade the direction of assets in a very short time. They are particularly popular in the forex and commodities markets.
Due to their status as an over-the-counter (OTC) product, CFDs are prohibited in the U.S. as they don’t transit via regulated exchanges. Additionally, the use of leverage increases the likelihood of greater losses, which is a subject of concern for regulators.
Choosing your trading strategy
It is better to get a solid understanding of stocks and trading before buying a stock and executing trades. Stock trading is a type of investment that focuses more on short-term rewards and prioritizes less on the long-term benefit.
Using investment terminology, not everyone who buys and sells stocks qualifies as a stock trader. Technically, most people fall into one of two categories: traders or investors, depending on how often they buy and sell stocks.
In popular culture, traders are portrayed as frenetic characters on Wall Street who buy and sell throughout the day while staring at monitors and scrolling tickers. Conversely, investors tend to hold on to their investments until retirement, buying and selling infrequently instead of purchasing and selling at intervals.
Investment strategies that focus on short-term trading have a different approach than those that focus on long-term, buy-and-hold investing.
Short-term fluctuations and seizing the market trend, according to active traders, are where the gains are generated. However, passive investment offers lower costs, simpler management, and better after-tax returns for investors with a medium to long time horizons.
Listed below are a few popular trading strategies:
A practical day trading strategy makes use of asset price volatility to the trader’s benefit.
Traders benefit from highly volatile assets since it allows them to make more money in the short term.
The day trading approach is based on playing the numbers game rather than analyzing the trends. A day trader will make several trades throughout the day, buying cheap and selling high in small profits that add up to huge sums at the end of the day.
Please note: Starting your trading career as a day trader is not encouraged. As a result of the fast-paced nature of this approach, you will have to make quick judgments and little time for study in between trades. An SEC research report revealed that 70% of forex traders lose money each quarter on average and that traders generally lose all of their money within a year.
Scalping is a trading method in which traders benefit from tiny price fluctuations and
Here the traders benefit from tiny price swings and reselling quickly for a profit. Essentially, scalping is a day trading strategy that refers to a technique that emphasizes generating large volumes of tiny profits. Consider the time in minutes.
To be successful in scalping, a trader must have a well-defined exit plan because even a modest loss might wipe out all of the small gains the trader has made. As a result, having the proper tools such as a live feed, direct access to a broker, and the endurance to execute several trades is necessary for this approach to be effective.
There will be numerous successes and losses during day trading or scalping, and the goal is to have a positive win/loss ratio.
Please note: This strategy is not permitted by certain CFD brokers (for example, Plus 500), and the account may be suspended as a result.
Swing Trading – days/weeks/months
The time duration differs when it comes to swing trading. Traders that engage in day trading frequently open and terminate positions during the course of the day. On the other hand, swing trading occurs over a considerably longer length of time, and the trade might be anything from a few days to a few months.
A swing trader’s goal is to profit from a changing or continuing trend in the market. In other words, it implies buying when things are low and selling when they are high. To be successful with this method, you’ll need to effectively apply both Fundamental and Technical analysis strategies.
Long Term investing – months/years
Long-term trading is a trading strategy in which a trader holds onto a position for a longer duration. It is possible to hold a position for a short period or for several years. It’s a solid technique for investors who like to take a more hands-off approach.
When it comes to long-term trading, most traders depend significantly on fundamental analysis because their primary focus is on the market’s prognosis for the future. They don’t pay attention to the day-to-day fluctuations as much as to the underlying fundamentals that drive the overall trend. Long-term traders utilize daily, weekly, and even monthly charts to analyze the market since they have a longer time horizon.
Bids and Asks
A bid price is the highest amount you’re willing to pay to purchase a share of a company’s stock. The asking price, on the other hand, is exactly the reverse. The minimal price at which the seller is willing to sell the shares is represented by this number. Decide on the right bid and ask price to achieve a profitable trade.
Learn to use Market orders and Limit orders
Choosing a stock order type is part of executing a trade when you buy or sell a stock, and most orders fall under the following two categories.
Market order: Buys or sells the stock as soon as possible at the best price available, indicating that you will buy or sell the stock at the current market price.
- Because a market order does not specify a price, your order will be executed quickly and filled.
- The price you pay (or get, if you’re selling) may differ from the amount you were given only seconds before.
- As the day progresses, the bid and ask prices vary continuously. Hence, when buying large, stable blue-chip stocks rather than smaller, volatile firms, a market order is the ideal method to utilize.
- Buy-and-hold investors prefer a market order because tiny price variations don’t matter as much as ensuring that the deal is executed.
It’s worth remembering that If you place a market order trade “after hours,” when the markets have closed for the day, your order will be filled at the current market price when the exchanges reopen for trading.
Limit order: Use this to buy or sell the stock better than or equal to the specific price you set. Setting a limit order means you are setting the maximum price you’re willing to pay for a purchase order, and the platform will only execute the order if the stock price falls to or below that amount.
If you use a limit order, you have more control over the price at which your transaction is executed. For example, if a stock is now selling at $50 per share, but you believe that a price of $40 per share is better in accordance with your opinion of the firm, a limit order instructs the broker to wait and execute your order only when the asking price falls to or below that level.
On the other hand, selling a limit order directs your broker to sell the shares as soon as the bid hits a specific amount.
On a limit order, you may add extra conditions to govern how long the order remains open such as:
- An “all or none” (AON) order will only execute if all of your desired stock is in the market at the price you specify;
- Good for day orders (GFD) expire at the conclusion of the trading day, even if they have not been fully completed;
- Good-till-canceled orders (GTC) stay in effect until the client cancels them or the order expires, which can take anywhere from 60 to 120 days.
Use a Stop Loss
The stock market is characterized by a high degree of volatility. For this reason, a beginner needs to learn how to avoid a heavy loss. You must establish a stop-loss price while completing a transaction in order to minimize your losses. Since a failure to put a stop loss in place might result in a significant loss of capital.
Automated investment management is available through Robo-advisory services, an automated investment adviser.
Most large brokerage companies and many independent financial advisors provide these services, which may be worthwhile for those who would like an expert to manage the trading process for them.
These firms will question your investment goals during the onboarding process and then construct a portfolio to meet those goals by investing your money according to your financial objectives.
Practice with a virtual trading account
Simulators of the stock market aim to mimic real-life conditions and performance as closely as possible. A practice account is a great method to grasp investing terminology while practicing trading and investing with virtual funds.
Some brokerages have a Practice Mode or Demo Account, which gives you free access to a wide selection of instruments and unrestricted trading as if you were using real money and you can apply the skills you learn on a practice account to an actual trading account.
With that being said, many variables influence trading and investing decisions in the real world, such as risk tolerance, investment horizon, investment objectives, taxes concerns, and the need for diversification. You cannot take investor psychology into account because actual physical cash isn’t on the line in this case.
Learning how to trade and develop a portfolio in a secure environment where you can make mistakes such as mistyping ticker symbols or misunderstanding order types is the best place to practice without causing any financial damage.
Here are a few brokerage accounts where you may practice trading with a demo account.
1. WeBull Paper Trading: Virtual Trading Simulator Account
WeBull paper trading offers a lot for those who are new to trading. The platform provides a demo account that allows you to test out different methods while also giving the instruction you need to develop some experience. Using a paper trading account at Webull is a straightforward procedure.
2. eToro Demo Trading Account
eToro is a social trading platform, which distinguishes it from the majority of other platforms. As a result, understanding the eToro trading platform using a practice account is quite beneficial. The eToro account is free, comes with $100,000 in eToro virtual money, and has no time restrictions.
3. Account TD-Ameritrade Broker Demo
ThinkOrSwim is TD-Ameritrade’s proprietary trading platform, and it is offered to US traders as a desktop, online trader, or mobile trading platform. TD-Ameritrade provides a sample account with full access to the ThinkOrSwim platform to allow you to experiment with it without risk. A virtual trading balance of $100,000 is offered to practice trading with free access for 60 days.
Tips for building your portfolio
Creating a portfolio may be only the beginning of your journey, but investors who are willing to put in time and effort may reap the rewards.
Develop a plan and take a long-term view. There will be fluctuations in your investments, and you must establish an investment plan that allows you to maintain your convictions during times of market volatility and bear markets.
Even if a stock you have bought decreases without cause, this long-term perspective calls for the mental fortitude necessary to buy and hang on to equities you believe in.
There will be years with positive returns and years with negative returns, and individual stocks themselves will also have varying returns. If you’re planning to invest over a long period, the stock market is a smart choice, regardless of what happens on a day-to-day or annual basis.
- Dollar-cost average: By buying over time reduces investors’ risk of price volatility. In dollar-cost averaging, money is invested at regular periods, such as weekly or monthly. For instance, you may buy more shares when the stock price is low and fewer shares when the stock price is high, eventually evening out your cost per share over time, resulting in a more equitable distribution of the price you pay.
- Automatic investment schedule: Some online brokerage firms offer an automatic investment schedule for dollar-cost averaging that may be set up for investors to take advantage of.
- Investing for the long-term: Long-term investing in the stock market has shown to be one of the finest methods to build wealth. Over the past 140 years, U.S. stocks averaged 10-year returns of 9.2%, with the S&P 500 actually returning 13.6% annually over the past ten years, according to the multinational investment bank Goldman Sachs.
- Passive investing: You should avoid looking at your stocks or mutual funds after you start investing in them. Aim to avoid obsessively monitoring how your stocks are performing multiple times a day unless you’re attempting to defy the odds and win at day trading.
- Stick to the basics: The stock market is rife with complex techniques and tactics, yet some of the most successful investors have stayed true to the stock market basics. For the most part, this implies relying on funds for the majority of your investment portfolio and buying individual stocks only if you believe in a company’s long-term potential growth.
Manage your stock portfolio
Although it’s probably not healthy to check your portfolio every five minutes now and again, it is essential to re-evaluate your portfolio a few times every year to ensure it’s still in line with your investing objectives.
Just a few things to keep in mind:
- A few of your stock holdings may benefit from a shift to more cautious fixed-income assets if you’re nearing retirement.
- To increase your portfolio’s diversification, purchase companies or funds in a different industry. If your portfolio is too highly weighted in one area, and that particular industry is hit, all your stocks in that one sector of your portfolio will suffer as a result.
- Similarly, pay attention to geographic diversification as well, if possible, as geopolitical or natural events can end up affecting your investments.
- Vanguard advises that international stocks should make up to 40% of your portfolio, or you can invest in international mutual funds to gain exposure to the global equity markets.
Best platforms to plan your first trades
Even while buying individual stocks appeals to many investors, for those with less experience, the risk may outweigh the reward. It’s essential for investors to have a way to keep track of market developments and make informed decisions about their next move. Thus, a solid platform will help you plan your trade.
Helpful investing platforms can assist the ordinary investor by making recommendations on buying particular stocks while limiting risk. The stock suggestions from these sites have been well studied and could help you reach your investment goals by making locating investment opportunities even simpler.
- Finviz – is a cutting-edge, all-in-one market screener that includes everything from pricing and technical analysis to earnings and much more. This platform allows traders and investors to quickly establish a macro market view by screening and finding stocks based on set criteria.
- Tradingview – It is a reliable community-driven platform for reviewing stocks in real-time on a more technical level; if you want to start trading, you can follow hundreds of professional traders who publish and share their setups openly, so it is worthwhile to learn from them and assess how similarly you think.
- TipRanks – The platform assesses financial analysts’ and financial bloggers’ public stock recommendations and ranks the experts based on accuracy and performance. Since the platform reflects Wall Street analysts’ sentiments and predictions for the stock, it can assist you in selecting your next move.
Successfully investing in the stock market may provide numerous possibilities to build wealth, with the potential for substantial returns on investment. Conversely, volatility is a critical component of the stock market. As an investor or a trader, you will experience ups and downs. Hence, beginners must grasp how the stock market works in order to succeed.
In the beginning, a significant financial loss may cause you to lose confidence. Prices of stocks fluctuate due to a variety of factors such as the news, fundamentals, and technical analysis.
Following and studying the recommendations and ideas in this guide will help you better understand stocks and the market in general, allowing you to decide whether to enter or exit a trade based on the information presented.
The stock market is fraught with uncertainties, and nobody can accurately predict a stock’s price. If you’re a novice, staying up-to-date with the latest news and stock forecasts will help determine the best trading decisions to make from the tools at your disposal.
Stock trading FAQs
Can I buy a stock for $1?
It doesn’t matter how expensive the stock is per share; you may still own a portion of a share for $1. Fractional share orders are not available for all investments. However, with some brokerages, a company’s stock must be valued at more than $1 per share and have a market capitalization of more than $25 million for you to be able to buy fractional shares.
What's the difference between investing and stock trading?
When it comes to buying and selling stocks, the major distinction is how often you do it. Trading is more frequent, whereas investing tends to be more long-term, with investors buying and holding for the foreseeable future.
When does the stock market open?
Trading on the New York Stock Exchange (NYSE) or the Nasdaq Stock Market (NASDAQ) takes place Monday to Friday from 9:30 am to 4:00 pm Eastern Time (ET). The starting price of a stock is determined by trading in the morning, while the closing price is determined by trading in the afternoon at 4:00 pm. Trading can also take place in what is called pre-market and after-hours.
Is Buying Under 100 Shares of a Stock Worth It?
No matter how many shares of a stock you purchase or sell, brokerage firms generally charge the same commission, and those fees represent a greater proportion of the stock price for smaller transactions. A small purchase of fewer than 100 shares can still be beneficial, especially with today’s cheap costs. But it’s only worthwhile if you think you’ll be able to recoup the expenses at sell-time.