Stock Trading for a Living: Getting Started and Best Practices
Many people dream of making money with stock trading, and others simply wonder from time to time if it can be done. Thousands of investors make money playing the markets every day, and though the biggest gains are the most exciting and what make headlines, there’s plenty of nuance and lots of slow-building wins for stock traders. Learning how to make money trading stocks will take time, but is an achievable goal.
Stock trading is a risky activity. If you try it out, you’ll need to plan for losses — some companies win and some lose every day. But with ongoing research and an understanding of which companies are worth investing in and why, you can make money trading stocks.
Getting Started as a Brand-New Stock Trader
Getting started and making money trading stocks are two different things. If you’re new to the game, follow these steps to set yourself up for success as you gain experience:
- Research market trends: Even the most successful traders don’t rest when it comes to research. You need to learn about market trends as well as reputable sources where you can stay current on breaking news. “Kiplinger,” “The Economist,” and “Bloomberg” are a few reputable stock-trading magazines to add to your daily reading list. It’s also worth following the blogs and social media accounts of industry experts, including successful traders, economists, and other specialists.
- Create an account with a trading website: Once you’re ready to start trading, you’ll need to create an account with a trading website — a site like Scottrade, TradeKing, or TD Ameritrade. Before picking a service, read through user reviews and BBB ratings, if available, to confirm that the website is reputable. You’ll also need to see what transaction fees and other charges you’ll pay for using the service. If you need help narrowing down your choices, look for amenities that will help you trade, such as investor research tools, mobile apps, or customer support services.
- Practice: Trading stocks isn’t just research, and it’s even more than just trading stocks. If you want to get better and see a return on your investments, you need to practice. Before you make any moves with real money, create an account on a site like ScottradeELITE or OptionsHouse and make some trades without using real money. This will help you get familiar with how trades are placed and what decisions you’ll make when a stock is doing poorly or well. This can help you learn how trading works before using real money.
If you’re a brand-new investor, you might be approaching the market from a general perspective. This is great, but over time, you’ll want to focus on an area that you’re an expert in or love learning about. The market is full of thousands of options, and it’s impossible to jump on every good trade that comes and goes each day. It’s simply better to focus on a small area of the market as you gain experience as a trader.
The good news is that as a new trader, you can research and explore freely without having to stick to a specialization right away. Just know that at some point, you’ll want to pick and master a specific part of the market. Also, if you’re a beginner searching for a trading website, remember that you don’t have to pick one right away. Some people create accounts with a couple of sites and then narrow their choices later when they have a clearer understanding of which amenities, services, and fees are best for their trading strategy.
Some Frequently Asked Questions
I’ll address some of the more common questions & comments here:
How do you pick the right stocks?
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This might sound easier said than done — after all, if everyone picked the right stocks every time, there wouldn’t be any losses. The truth is that the right stock isn’t always the most well-known or the most exciting. Before deciding to invest in a company, ask yourself these questions:
- How profitable is the company? If you’re buying stock and want its value to increase, you’ll need to evaluate the company’s financial reports. These records are available online for any company that’s traded publicly. If you’re having trouble finding this information, you can contact the business to receive a physical copy of the most recent annual report.
- Is the company likely to be profitable moving forward? Even if the annual report didn’t show any profitability, a company may still be worth investing in. Check the business’s leadership, its annual expenses, and its debt. You can also review its balance sheets and income statements to assess whether the company is likely to be or stay profitable in the future. You may also find, for example, that a new or low-profit company has recently acquired some veteran executives. This type of change is a compelling reason to invest in a business.
- What caused any losses? If you find a poor quarterly performance in the financial report, it doesn’t necessarily mean that it’s not worth investing in the company. Research and uncover what contributed to this low performance, and ask whether there’s a risk of a repeat. And if there is a risk of another poor quarter, you’ll need to decide whether the potential payoff is worth investing anyway.
- How has the company done compared to its peers and industry? If you come across a loss or gain, it’s possible that factors related to the industry — not necessarily the company — contributed to these results. Compare the company’s stock history to its competitors to see how it has fared over the past years. Also, look at industry trends. When stocks were up or down for the entire industry, did the company perform as expected? Or did the enterprise excel or miss out on growth that competing businesses enjoyed?
As you gain experience, you’ll add your own questions to this list so you can vet a stock and make sure it works for your trading strategy. You may also have criteria to inform when it might be acceptable to deviate from your strategy. This is the type of nuance that you can only develop through extensive research, practice, and real-world trading. For total beginners, though, it’s recommended to stick with well-known companies that have lots of data about their trading histories, leadership, and profitability. It’s also a good practice to start with just a small amount of money.
Note that some people also have rules about things like only trading with a recognizable brand or an enterprise with years of success. Depending on how conservative or aggressive you want to be as a trader, you might adopt some of these strategies or abandon them in favor of other conditions, like having a solid business model regardless of time in operation or offering a certain type of product or service.
How do you buy your first stock?
After you’ve researched some companies and practiced buying stocks virtually just for fun (and experience), it’s time to try the real thing.
- Log on to your trading website account, and look for some well-researched, reliable stocks.
- It might be tempting to start with something risky or invest a big amount, but it’s best to get your feet wet with a small trade.
- It’s common for beginners to invest as little as $1,000 while they’re still learning.
- Remember to check for transaction fees, though. Since you’re now working with an official account and trading real stocks, these types of charges will apply.
Can you Trade Stocks for a Living?
Thousands of people trade stocks as their full-time job, and thousands of others enjoy trading part-time. How you approach stocks is entirely up to you. You can figure out how to make money trading stocks at home, or you can pursue day trading as a career.
Some people also enjoy trading more passively through a mutual fund or working with a broker to facilitate trades. In a mutual fund, you coordinate with a group of other investors and pull your money together for investing by a professional fund manager. These investments are typically diversified across a variety of industries and sectors. Another choice is to join a stock trading group or online community where you can find insight and support — which is certainly valuable for new traders.
How Much Can You Make From Stocks in a Month?
How much money can you make from stocks depends on your trading strategy, your area of expertise, how the markets are performing, and countless other factors. Professional, full-time investors can make over $5,000 in a month. The exact return rate also varies depending on the amount invested. If you’re just starting out or only trading part-time, you can still make hundreds or thousands a month. Plus, as you gain skill and reinvest your earnings, you can earn much more on a monthly basis.
8 Tips for New Traders
New traders have numerous strategies and analytical methods to research and try as they approach the market for the first time.
1.) Look at Different Types of Markets, Strategies, and Analysis Methods
Traders with more experience can revisit the techniques they use, too, and see if they can change their approach to start turning a profit. These are just a few options you can pursue as a trader:
- Trading penny stocks: Penny stocks are low-value stocks traded for less than $5 per share. The returns are generally low, but there’s also less risk since you won’t have to invest so much to start trading. It’s also possible to make a huge profit trading these affordable stocks. You’ll have to learn about over the counter markets and put extra work into researching a company’s financial history since businesses that trade penny stock don’t have to meet the strict financial requirements of the New York Stock Exchange or NASDAQ.
- Day trading: As a day trader, you’ll open and close several trades within the same session. Since these investors are looking at fluctuations within a small timeframe, they’re searching for different indications of a good trade than long-term investors. Day trading is generally not advised for novice investors.
- Investing in long- and short-term strategies: You can day trade, hold on to stocks for decades, or find a stock strategy somewhere in between. There’s lots of flexibility in how you trade, and people have made a profit using various strategies, approaches, and techniques in the stock market.
In addition to exploring different types of trading or strategies that may be better suited to your personality or financial goals, you can look at different market analysis methods to give you an edge or put you on track to profitability.
The basic analysis methods are fundamental and technical. Both are used to predict price changes and thus inform which stocks to buy and when. The difference is that a fundamental analysis looks at the company — its leadership, profit history, anticipated gains, future goals, reputation, etc. — to gauge the stock’s value.
A technical analysis, however, looks at market trends and what drives investors to make stock decisions. You may find success by shifting your focus from one analysis method to another or by trying a combination of the two to inform your trade choices.
2.) Invest in Dividend Stocks or Initial Public Offerings
Another option for turning a profit as a trader is to invest in high-yield dividend stocks. With this type of investment, the company pays stockholders dividends — a percent of company profits — each quarter. Investors receive a dividend regardless of whether their stock has appreciated in value.
Initial public offerings are another choice. These are the first stocks a company ever offers, and though most startups fail, it can be a wonderful opportunity to get a stock at its lowest-ever price. Since the company won’t have prior profit data, though, you’ll have to do more research about factors like leadership and the company’s business plan and direction before determining whether an initial public offering is a good opportunity.
3.) Perfecting Your Trading Skills
You don’t have to be an expert to make money trading, but as you place more investments and keep practicing and researching, you’ll naturally get better at trading stocks. If you find that you’re consistently not making money on your trades — regardless of whether you’re a new trader or have some experience — you can follow these pointers to help turn things around.
4.) Follow Some Stock Trading Best Practices
If you find that your trades aren’t getting positive returns, go back to the questions you ask to help you pick a company to invest in. You may need to add or change the criteria you use to pick businesses.
You can also try some other best practices for making lots of money in online stock trading, such as investing in mid- and large-cap companies. The former have a market capitalization between $2 billion and $10 billion, and the latter have a market capitalization over $10 billion. Investing in these companies is often fruitful because market capitalization is an indication of the company’s stock price compared to their outstanding shares.
Another option is to add an extra step to your due diligence when investigating companies: listening to a company’s earnings conference calls. If you’ve already reviewed the company’s quarterly earnings release, this additional step will give you a clearer understanding of the business’s leadership and plan for moving forward.
5.) Monitor the Markets Every Day
People starting their first day of trading and those who’ve been in the business for decades have one important responsibility in common: monitoring the markets every day. This will help you stay on top of developing trends, but it’s also key to the tried-and-true trading mantra of buying low and selling high.
Whether you plan on being a conservative, aggressive, short-term, or long-term trader, this rule of thumb should guide your investing decisions.
6.) Buy Low and Sell High
Buying low and selling high is easy to remember, and it’s a proven method for netting a profit as a trader. But you don’t want to make impulse decisions whenever a stock price climbs or plummets. In fact, it’s important to never panic when a stock drops below the price you paid since the amount might rebound.
To decide whether an amount is high or low enough to warrant a trade, do this:
- Look at the company’s earnings per share and employees’ purchase activity.
- You also want to look at the business’s leadership, profit history, and longevity.
- You want to buy low, but you also want to invest in a company that will recover — hopefully right after you’ve acquired their stock.
The same principle applies to selling high.
If you want to sell stock so you can reinvest the profits, you want to ride the wave of the stock value increasing for as long as possible. The company’s success may also mean that the business is able to reinvest in itself, which may further drive share value.
Patience is critical for this reason, but you also need to know when a price is likely to plateau or decline. Tracking industry trends and company activity can help you pinpoint the best time to sell.
If you’re interested in day trading or short selling, buying low and selling high will be vital to your success. You’ll also be most interested in volatile markets since frequent increases and decreases in stock value open the door for frequent profitable trades. There’s lots of inherent risk, though, in volatile markets.
Though you’ll eventually become an expert in a niche market, a good plan for seeing consistent gains is to diversify your portfolio. This is only recommended once you’ve got a solid understanding of how the market works and how to buy and sell stock.
Diversifying is important since it protects you against industry fluctuations. For example, if all your stocks were in tech and a government regulation or new innovation negatively affected stock prices in that sector, all of your investments would be impacted. A diverse portfolio is minimally affected by such trends.
This strategy is also a good way to balance high-risk and conservative investments. Investing in startups is generally risky, for instance, since most are shuttered within five years. If you’ve invested in an established company in a certain industry, though, you can buy stock in a startup in the same segment.
Their mutual profitability could be universally good for the industry, or perhaps the bigger company will acquire the smaller one — netting you a sizable profit.
It can be tempting to walk away from trading once you’ve made a profit. However, if you want to succeed in the long term, it’s wise to reinvest your earnings into other stock or into something less profitable but low-risk with reliable, long-term benefits, like a savings or retirement account.
In Closing: Learn by Doing
To a beginner, picking stocks might seem like finding a company that’s performing well or looking for a startup enterprise boasting a remarkable product or service and investing in them. Indeed, many of the most successful stockbrokers jumped on good opportunities and walked away with huge gains. But these people didn’t fall backward into these success stories.
Expert traders bring their knowledge to the market every day. They know what trends to watch for, and they know what makes a good trade or bad trade — and when it’s worth breaking their own rules. Sure, some people do get lucky trading stocks.
If you want to move confidently knowing that you can make money trading stocks, though, you’ll need to constantly be working on your strategy, keeping an eye on market trends, and standing ready to strike at the right opportunity.
Whether you’re totally new to trading or have been incurring some losses and want to turn things around, one of the best ways to succeed and make money trading stocks is to watch what trades experts make and learn how they’re calculating their decisions.
The key is to understand why the trade is being made — even if a pro isn’t trading in an area you’re familiar with, if you can study their methodology, you can apply their techniques and approach to your own area of expertise. In fact, this is the best way to learn how to make money trading stocks.
Regardless of your knowledge and skill as a trader, you’ll find countless resources online to help you make better investments and start seeing profits from your stock. Join our upcoming webinar hosted by market experts to learn more about how to make money trading.