Trading stocks can be a daunting prospect for the uninitiated, but it doesn’t have to be. With these basic tips for beginner stock traders, you can get started building your portfolio with confidence.
Trading stock market offers you a way to create wealth and attain financial freedom. Though it takes a lot of effort, patience and learning to succeed in trading stocks, but once you develop that skill, trading on stock market becomes so rewarding and easy.
Trading in share market means buying stocks or shares of a company at low price to sell them at higher price to earn money out of the price difference. This buying and selling of stocks happens at stock exchanges.
Learn everything you need to know about how to start trading stock market, manage your finances, and create strategies that will help you make profitable investments.
Understand The Risks Involved in Trading
How much money stock market trading needs?
There is no upper or lower limit to how much money stock market trading can be started with. You can start trading with any amount.
As a beginner in trading stock market, it is advisable, to start with small amounts. This ensures you don’t lose much money in your learning phase and have capital to trade another day.
Trading stocks can be risky, and losses are always possible. Be sure to understand the risks involved before trading in the stock market and have a solid plan for how you will manage them.
Develop risk management strategies that include diversifying your investments and setting stop-loss levels to protect your capital.
As with any trade, know what you are getting into and understand when it is time to exit.
How Many Types of Trading Are There
Day trading, swing trading and positional trading are the types of trading stock market. This is depending upon the time horizon traders give to a trade.
- Intraday Trading: Creating a buy or sell position in a stock and closing that position before the end of the same trading day is what’s day trading known as. Scalping is type of trading with trades lasting for extremely short time periods in day trading.
- Swing Trading: Stock market swing trading is where the trade lasts for a few days. It is type of momentum trading with traders trying to ride short term momentum in stock prices.
- Positional Trading: The trades in positional trading are held for weeks or months. This is ideal for trend trading. Trends in stock prices can continue for weeks or months resulting in big profits for the trend traders.
You have to choose for yourself which type of trading suits your risk profile. It is worth mentioning that day trading is very risky and takes heavy toll of the traders. But it is also true that most of the novice traders are attracted to the fancy of day trading and consequently keep loosing money.
So, while trading stock market, beginners can be better off with swing trading or positional trading. It gives time to think and react to the beginners while in a trade.
Which Stock is Best For Trading
There are certain rules to decide which stock is best for trading. The stock should be a liquid stock, means it should have high trading volumes. Leaders in any sector you want to trade in make good trading stocks.
Apart from that, the stocks aligned in the direction of general market trend should be selected for trading. This is done on the basis of technical analysis of stocks. Thus, in case of up trending market, the stock having chart structure and the technical indicators with buy signals should be taken to your trading watchlist.
It’s not very useful to make the stock analysis complicated by adding maximum number of technical indicators. Using trend lines, Fibonacci retracements and two or three commonly used indicators like Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD) and Moving Averages (MAs) do more than enough for stock selection for trading stock market.
For all the analysis related to stock research, you would need a stock market trading software. The software provides all types of technical charts along with all the available technical indicators.
Stock Market Trading Rules
Trading in stock market needs you to follow the trading rules. The rules are simple but extremely important to survive in the market.
First and foremost rule is to follow the trend. Trend is a trader’s friend. Find the trend in the stock market. In up trending market, trade the stocks with buy signals. In down- trending market, trade the stocks with sell signals.
Second important rule is to keep the losses short. Keep your risk low by trading low quantity at the start of a trade and keep on adding position as the stock starts moving in your expected direction. In case of adverse movement, exit the position at your predefined stop loss price.
Losses are the part of trading stock market. They would keep coming, you just have to keep them small so that you do not exhaust all your capital in few trades and left with no money to trade another day.
Profitable trades should be left running with trailing stop losses. You should not be in hurry to exit the winning trades early.
Most traders make the mistake of exiting the winning trades early to protect the profit and let the losses piling up in hope of reversal to profits.
Third important rule is to maintain position size strictly to avoid big losses. You should risk only 1-2% of your total cash in any trade. Your stop loss and the 1 or 2% capital put to risk defines your position size for a trade.
Now that we have learnt about the basics of stock research and trading, lets talk about how trading in share market is executed!
New traders keep looking for specific stock market trading strategies to make money in trading. There are no fool proof trading strategies as such. You have to create your own trading strategy for each trade.
Using technical charts along with trend lines, fibonacci retracements, candlestick patterns, chart patterns and technical indicators, you find your support and resistance levels for a stock.
You buy stocks above support and predict a tentative target based on the above-mentioned technical parameters. Resistance levels also make a target price for the trade. Keep your stop loss below the support level.
The trade may work out as you planned or may not work as expected. Any chart pattern, any analysis can fail in stock market. In case the trade does not work out, take your loss and exit the trade gracefully.
While trading stock market, what will make your trading profitable is not how many winning trades you got but the big profits and the small losses you got. A big profit can cover the losses of few losing trades.
Utilize Low Fee Brokers for Online Stock Trading
Choosing a broker for trading stock market online should involve looking at the fees associated with each platform.
Look for brokers that offer low fees, no account minimums, and access to a wide variety of stocks.
This will help ensure that your cost per trade stays in check while still allowing you to make money in the stock market.
Trading stock market is a game of probabilities. We trade probabilities supported by set of tools to turn the probabilities into our favor.
Trading stock market needs a strategy based on the tools and tips we just discussed. You have to keep faith in your research and strategy and allow the market to do what it does best – to unfold!