You can earn a living out of stock trading, but it is not as easy as it sounds because you need to be smart about it. If you are a beginner, you want to keep in mind that most of the investors who make it in the field keep things simple.
They do that by investing in a varied fusion of low-cost index funds. Ultimately, this is the key to great performance in the stock market.
Here’s then, is how to trade stocks successfully.
Open a Brokerage Account
The first thing you need to do is open a brokerage account when you want to begin stock trading. It is impossible to trade stocks without one because it is what will be used to hold your investments.
Now, if you do not have one already, you can simply use an online broker to open one within minutes.
Opening an account doesn’t require you to invest anything. It just prepares you to do so once you have all the information you need and are ready to begin trading.
Come Up with a Stock Trading Financial Plan
It doesn’t matter how lucky or skilled you are when it comes to trading stocks, but assigning more than 10% of your investment portfolio to individual stocks exposes your money to a lot of instability. That is not the only way you manage risks either.
You also want to invest money that you are willing to lose and not spend money that is allocated to mandatory expenses like tuition or down payments.
This safeguards your money in case things take a turn for the worst.
Learn to Limit and Use Market Orders
Now that you have your budget and brokerage account in place, you are ready to start using your trading platform or online broker’s site to place trades.
At this point, you will be presented with a few choices when it comes to order types and they will determine how your trades go through.
The two most common types are market orders that sell or buy stocks promptly at the best existing price and limit orders that sell or buy stocks only at a specific set or better price.
Experiment with a Simulated Trading Account
Trading stocks involves gaining profit or losing your money so you cannot afford to put your money on the line when you are not sure about what you are doing.
In that regard, you want a low-pressure, hands-on experience that you can access through digital trading tools offered by online stock brokers. This is also referred to as paper trading.
This allows you to test your trading prowess as well as develop a track record before putting real money on the line.
Quantify your Returns Against a Relevant Target
This is something that all investors should do. It is not reserved for just those who are active. Traders select stocks just so they can be ahead of benchmark indexes.
You need to measure results if you want to trade stocks successfully and if you can’t do that, then it would be in your best interest to invest in low-budget index ETFs or mutual funds which are essentially a collection of stocks whose performance lines up with that of benchmark indexes.
Stick to your Standpoint
To be a successful trader in stocks, you do not have to hunt for the next biggest breakout stock before other investors do. Keep in mind that by the time you get wind of a stock that is likely to thrive, so have numerous other traders.
This means that the potential has probably already been factored in the price of the stock. You may be late to make a rapid turnaround profit but that does not mean that you are done for.
Great investments continually deliver value to stockholders for years. This is a good reason to treat active investing as a hobby rather than a tool to help people gain quick riches.
Final Thoughts
The stock market is a lucrative one but you have to know how to navigate it to reap the full benefits. This is particularly true for beginners. Since it is not advisable to jump into trading stocks without understanding the groundwork that goes into it, you will appreciate the tips in this guide.
