How To Get Started In Stock Trading

To get started in stock trading you should take the time necessary to invest in yourself and learn all that you can about this fascinating business which has the potential of being very lucrative. By dong so, it will give you the best chances of trading successfully and profitably for the long term.

So, lets dive right in. Stocks have their own personalities and characteristics which gives them their own unique way of moving about in the stock market. As a result, stocks can have significantly different price patterns from one another which makes them individually unique for trading.

Try to get acquainted with the stocks that you are interested in trading by observing them on a chart using different time frames. Pay attention to how they might possibly move in the stock market based on past price patterns and trends.

Stocks can vary like night and day as to:

And, as if this wasn’t already enough to consider when selecting stocks to trade, don’t worry!

Fortunately, you can significantly narrow down stocks to the ones that will best fit your trading criteria. This is where stock screeners come to the rescue that can quickly filter stocks based on your screening criteria all right from your computer.

Upon signing up with an online broker you should get instant access to a stock screener built right into your trading platform.

It’s also a good idea to build a watch list of stocks that you are interested in trading so you can keep a close eye on them to give you some potentially great trading opportunities.

Major Stock Exchanges

There are 1000’s of stocks of publicly traded companies that are being traded every day on organized major stock exchanges. The major stock exchanges in the United States are:

• New York Stock Exchange (NYSE)
• National Association of Securities Dealers Automated Quotation (NASDAQ)
• NYSE MKT LLC (formerly known as the American Stock Exchange)

The stocks traded on these exchanges can range from highly recognizable companies like Boeing, General Electric, Ford, Intel and Microsoft to companies that you may have never heard of before.

Companies traded on stock exchanges are required to have periodic audits of their financial statements and footnote disclosures by independent accounting firms to give a level of fairness and assurance that they are operating and performing as stated according to their records and reports. Such companies are also required to be registered with the Securities Exchange Commission (SEC) before they can be listed on the stock exchanges.

Doing Stock Trading Research

Before traders pull the trigger to execute a trade, they will generally do stock research to help them determine the feasibility of the prospective trade. This is usually accomplished after doing enough conclusive research from using either technical analysis or fundamental analysis (or a combination of) to warrant a justifiable reason to take the trade in the first place.

For example:

A “Technical” Trader relies more on the tools of technical analysis to help predict the short-term future price movements by analyzing past and current price action using different methods of technical analysis. Generally, short-term “technical” traders are more interested in assessing the trade set-up along with the risk-to-reward ratio the trade can potentially offer. Technical analysis is generally used for shorter term trading styles such as day trading, swing trading and trend trading.

A “Fundamental” Trader may be more interested in performing fundamental analysis to assess whether or not the current stock price may be overvalued or undervalued according to its true theoretical price. Fundamental analysis can be used to find financially strong companies with growing revenues and earnings as well as companies that are dominating their industries. Fundamental analysis is usually used more for longer term trading styles like positing trading.

Either way, doing stock research (whether technical analysis or fundamental analysis – or a combination of) will help you to make better trading decisions based on your expectations for such things as valuations of stock prices, future price movements as well as the timing of when to enter and exit trades.

Again, with the power of stock screeners, doing stock research can now be quickly and easily done on your computer all at the stroke of your fingertips.

What Is The Best Trading Style?

There are different types of trading styles that you can engage in when trading stocks (or other types of financial instruments for that matter). The most popular trading styles are day trading, swing trading, trend trading and position trading. All these trading styles are widely accepted and are used throughout the trading profession. However, the best trading style for you will be the one that will best fit your trading personality and trading objectives.

Your trading personality and trading objectives can be better determined by discovering who you are as a trader (your “trading personality”) as well as identifying your trading goals and expectations. By learning about the psychology of trading it can help you discover all this. Once you have a good understanding about your “trading personality” and your trading goals and objectives, you can then start to build a personalized trading plan. By having a carefully thought out trading plan, it can greatly increase your chances of becoming a successful and profitable trader for the long term.

Should I Open A Margin Account?

If you are interested in doing any of the following when trading:

• Want to trade a $40 or $75 or $150 stock but don’t have enough funds?
• Do you need just a little more money to buy an even 200 shares instead of 187 shares?
• Trading both sides of the market by also “shorting” stocks?
• Looking for more buying power when the right trade presents itself?
• Not having to wait for funds to clear from unsettled to settled in 2 days after the trade date (T+2) with having a cash account
• Day trading?
• Trading advanced option strategies?

Then by opening a margin account with your online broker may be in your interest.

Margin accounts can offer up to 2:1 buying power on stocks held overnight. The margin buying power is available right into your trading account so that you have automatic access to it whenever you need it.

(Note: not all stocks have 2:1 margin – some stocks have less margin capacity while other ones can’t be bought on margin at all).

Example: if buying 200 shares of a stock would cost you $10,000 out of pocket with having a cash account, then by having a margin account you would only need to put up $5,000 if such stock had 2:1 margin.

If you are interested in “shorting” stocks (profiting from falling stock prices) then having a margin account will be required since “shorting” involves trading stocks that you don’t actually own. Your online broker will allow you to borrow stocks from their inventory or the broker will borrow them from another source for you to trade “short.” This may sound confusing, but the mechanical trading process of “shorting” stocks is just as easily done as it is for buying them.

When buying stocks on margin your broker is loaning you the money to increase your buying power. The cash and stocks in your brokerage account then serve as collateral for the margin loan.

Margin interest will be computed on the margin loan calculated by your broker and charged to your account.

A “margin call” from your broker may occur if a stock has experienced a substantial unfavorable change in price since such stock serves as collateral for securing the margin loan. A margin call will require you to deposit additional funds to your brokerage account (or the selling of securities) to satisfy the margin call.

You must consent to the terms and conditions of the margin agreement and be approved by your broker to have margin trading privileges.

Please check with your broker to get the full details about their own margin account rules and requirements.

Caution note: when trading on margin you are essentially increasing your leverage (financial risk). It is only advised to trade on margin, and then only at times, after you have gained the necessary trading experience and skills to trade confidently and are disciplined with risk management.

Going “Long” Versus Going “Short”

There are several ways to profit from trading stocks. This will depend on what kind of market outlook you have:

• If you think that a stock will be rising in price – buy it (known as “going long”). Your profit equals the difference between what you paid for it and the amount that you later sold it for.

• If you think that a stock will be falling in price – “short” it (known as “going short”). You first sell (“short”) the stock at one price and then later buy it back (“buy to cover”) at a lower price. The difference between the two is your profit (to short a stock you will need to open a margin account – see above).

Lastly, One Final Tip About Stock Trading

It is highly recommended when trading stocks that you also pay close attention to the broader stock market. You can do this by following the indexes of the broader stock market having the following names and ticker symbols:

• Dow Jones Industrial Averages (.DJI)
• S&P 500 (.INX)
• NASDAQ (NDAQ)

This holds true, because for the majority of the time, the majority of stocks will be trading in a similar fashion as to how the broader stock markets are trading.