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Trading in the stock market can be very profitable or painfully unprofitable. Many professional traders can make a few hundred to a few hundred thousand dollars a year, depending on the traders competence and the trading system used. You can do it, too. You just have to know how. This article will show you the steps to take to win at stock trading while keeping losses manageable.
The easiest way to trade stocks will be to pay someone else to trade stocks. There are a number of well known stock brokers, and you should not have trouble finding someone who can place trades for you and give you advice.
Find a website or service to use to trade stocks.
For people who are especially determined to make it on their own, there are a number of websites that will allow you to trade online. Acting as your own broker will give you a greater amount of control, and youll save yourself a little money. E*Trade, Fidelity and TD Ameritrade are some of the more popular websites to use.
Pay attention to the services offered by some of these companies. Some offer extra advice, tutorials, debit cards, mortgage loans, and other benefits. Weigh the benefits of each service and decide what is best for you.
When you trade stocks, you can buy or sell stocks with a market order. This means it will be traded at the best available price at that point in time. It is important to remember, however, that it takes a little while for a sale to go through, and if the market is changing very quickly, you may get a very different price than the one you originally saw.
Use stop market orders. Also called a stop-loss order, this is similar to a market order except that the stock will be sold when it reaches a particular price. This is often used to avoid a loss in a falling market.
These can be used to set an upper or lower limit at which a stock could be bought or sold. Instead of a set price, it is a fluid price which is determined as a percentage of the current price. It is an extremely useful tool which can protect you from huge market swings.
Another option available to you is to place limit orders. These create a certain price window outside of which your stock will be bought or sold. This can help you get good prices. There is often a special commission on this type of order.
Use stop-limit orders. This is a limit order which executes when a specified stopping price is reached. This provides even more control but, as with limit orders, you take the chance that your stock may not actually sell.
Many brokerage firms offer accounts which can store your money between trades and pay you a small amount of interest in the meantime. This is very useful and should be factored into your plans if you are using an online service.
Make sure you have the minimum amount of money required to start and maintain an account. E*Trade, for example, requires just $500 to open an account. Federal regulations require that you have at least half of the cost of the stock youre purchasing in your account, and that your equity percentage is no less than a quarter of your total investments.
Make sure you are looking at a current quote.
Remember that the market changes quickly, and the quote youre looking at may not be up-to-the-minute. Find a service which allows you to look at real-time prices so that you can get the best deal possible.
Stock tables are a great way to evaluate stocks, but they can be difficult to read. You will have to learn how to interpret them and which numbers are the most important, so you can set your priorities and make the best decisions.
The conventional wisdom is to buy when stocks are at a low price and sell them at a high price later. This is great in theory, but its difficult to put into practice. Theres no way to know how a stock will move in the future. Instead, look for stocks with great momentum. The idea, of course, is to try to buy at the beginning of an upswing and sell before a big decline. Easier said than done.
Have a good ask price, and make a good bid price.
If you have unreasonable expectations, you will have a very hard time buying and selling your stocks. Ask only what is reasonable to ask and dont expect anything well above or below market value.
Consider the entire company. Look at profits and performance. A stock might seem expensive, but if the company continues to make bigger and bigger profits, the stock might actually be cheap.
Blue chips are stocks from companies that have an excellent performance record, and their stocks are known to perform well. These are good stocks to start with if youre just learning. Common examples include IBM, Johnson and Johnson, and Procter and Gamble.
You may have seen movies showing stock traders rising to lavish riches with a little determination and smarts. The problem is that investing also requires a certain amount of luck. Dont get caught in the romanticism of fiction by believing the first start-up company you invest in will be the next Microsoft. Make good decisions and take safe options if you want to succeed in the long run.
There are lots of people in everyday life and on the Internet who would love to sell you bad stocks. Use your judgement: if something sounds too good to be true, it probably is. Make safe bets, rather than getting caught in some get-rich-quick scheme.
Read everything you can. Never stop learning about the market. You can even practice with virtual money before actually investing. Once youve begun investing, you will need to keep up with market developments and research in the industries in which you invest. Watch your companys competitors closely. This can feel like being in school all the time, so think twice about stock trading if youre not willing to keep a close eye on the market.
Read the companys annual report as well as the one they file with the SEC. This will give you important information about where the company might be going, and hint at possible problems on the horizon.
Read reliable sources of investment information like Standard and Poors reports, the Wall Street Journal, Bloomberg or Forbes.
Youll want to take some time just watching the market and learning how it works. Watch as stocks rise and fall, and observe the sorts of things which evoke market reactions. When you feel like you understand how the market works, then you can get your feet wet.
Take a hard look at companies before you invest in them.
Fully investigate their finances and make sure that theyre what they should be. Look for problems. If theres a hint of trouble, seriously reconsider.
You will need to look at their earnings, sales, debt, and equity. Sales, earnings, and equity should be going up over time. Debt should be going down.
You will also want to look at their price-earnings ratio, price-to-sales ratio, return-on- equity, earnings, and ratio of total debt to total assets. These will give you an even deeper feel for a company than just looking at earnings and debt.
Safe investments are in those things which people need and will continue to need, things like oil, food, medicine, and certain technologies.
The safer way to make money investing is to gain it slowly over time. Stocks which rise very quickly can fall just as quickly. Especially when you first start trading and youre trying to understand the market, look for companies which have a long, stable history that shows no sign of faltering.
Learn how to usetechnical analysiseffectively and profitably. This is simply using past price action to anticipate future results. For instance, if a stock has been going up for the last six months, you can assume it will keep going up unless the chart action tells you otherwise. Technical traders act on what they see, not what they feel will happen next. Arrogance kills. Search wall street newbie for more information about technical analysis.
Know that technical analysis differs from fundamental analysis, which is another stock-picking philosophy. Although both philosophies have their putative benefits, neither has been historically shown to outperform simply keeping your money locked up in sound stocks.
Understand tension, or the concepts of support and resistance. Support and resistance are considered critical indicators for price continuation, stalls, or reversals. These are visual charted tops and bottoms of a stock. For example, say that a stock trades between $55 and $65. Next time the stock is trading at $55 (support), you would expect it to go back up to $65 (resistance), and vice versa.
If this stock goes up to around $68, far beyond resistance of $65, you would no longer expect it to go to its old support at $55. Instead you would expect $65 to be its new support and for the stock to go to new highs. The opposite would be true if the stock broke below $55.
This is essential for profitability. You must have systemic rules, rules for your trading game, that you must follow. These rules tell you when to get in and when to get out. Follow these rules strictly even if it means taking a loss now and then. For example, if you have a rule to limit losses to 10%, and the stock loses 10%, you sell. Dont argue with the market.
If you dont feel confident making a trade, wait and watch.
Find a stock investing game which uses fake money. Take a class on the topic. Do whatever you need to do to get comfortable with analyzing financial situations, making decisions, and going through the motions.
Over 95% of traders follow the losers as they read obsolete books by old-school systems and indicators of the day without knowing that all this obsolete stuff is used by big money to kill the little guy. Find the latest work from the most successful traders to learn from.
Start small and increase your trade size as you gain in knowledge and confidence. Dont be discouraged with losses at first. Eventually you too can become a winner, a consistently profitable winner, not on your own this time but with outside support and guidance, actively trading with winners and your own personal and professional coach.
Its not sexy, but it should make you money. Keeping your stocks invested for the long term will net you a lot more money than short-term trading (for a variety of reasons).
Broker fees, market dips and surges, and the general upward trend of the market all contribute toward making the patient investor a rich investor.
Where can I find a professional trader to trade for me?
There are many, many brokers available. Find them online (search for discount brokers) or in your phone directory (stock and bond brokers).
Im a Bolivian citizen that lives in Bolivia. Can I trade in the US stock market through a trading website?
Check first with one or more Bolivian brokers to see if they can give you access to U.S. markets. If not, some online brokers do work with non-U.S. traders but require certain procedures for qualification. Contact any online brokerage to learn their rules.
It is necessary or required to have a credit card in applying for online trade?
No. Brokers dont care about your credit cards. They expect you to open and maintain your account with cash.
Stocks that should be considered for trading for short term rather than long term.
Many brokers will let you open a demo account prior to beginning real trades.
An ask price is the lowest per-share price currently being offered by sellers of a given stock. A bid price is the highest per-share price currently being offered by potential buyers of a given stock.
Each brokerage has its own minimum deposit requirement. Some online brokers will let you start with no deposit at all (other than whatever you want to use to make your first purchase). Several websites (NerdWallet is one) offer charts comparing features and requirements of online brokers.
How do I know that Im not conned or the legitimacy of those who call and try to recruit me for forex?
Do not do business with anyone who tries to recruit you. They have no interest in your well-being.
How long would it take for a stock to make profit, if I invested for a short term?
No one knows. It could take one day. It could take 20 years. It will probably take somewhere in between those two times.
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You will frequently hear the terms bull and bear. Bull means a rising market, while bear means a falling market. If you have trouble remembering which is which, just keep in mind: you may be able to take a bull by the horns, but if you see a bear you should just run like hell.
The primary market is where new stocks are traded. The secondary market is where previously existing and previously traded stocks are traded. Most average people trade in the secondary market, as the primary market can be a higher risk.
Find a few markets to specialize in and educate yourself about those markets. Learn about the latest developments and try to guess trends. Dont trade on your guesses, however, until youve demonstrated a talent for making good ones.
Never jeopardize the money you use to support yourself or your family. Set aside money specifically for stocks. Dont dip into family funds.
To trade stocks, sign up for a stock-trading website so you can easily trade online. Then, find a website or service that provides real-time stock prices so you always know the current value of your stocks before you trade them. When youre ready to start trading, try using market orders to guarantee that youre getting the best available price for your stocks. You can also use trailing stops to protect your stocks from big market swings. When youre not trading, store your money in a brokerage firm account so you earn interest off of it.If you want to learn more, such as how to avoid fraud and read the market, keep reading!
wikiHow is a wiki, similar to Wikipedia, which means that many of our articles are co-written by multiple authors. To create this article, 53 people, some anonymous, worked to edit and improve it over time. Together, they cited9 references. This article has also been viewed 501,717 times.
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