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Learning to Trade Stocks Is Easier Than You Think

T he intricacies of trading stocks can be confusing and intimidating, especially when you’re first starting out. The stock market has a lot of moving parts, but when you get down to the basics, it’s really pretty easy to understand. If you find yourself thinking, ‘I want to learn how to trade stocks,’ the best thing that you can do is start studying. By becoming more familiar with the types of trading, effective strategies, and lingo, you can ensure that your trades are successful and profitable.

What Is Stock Trading?

Image via Unsplash by Austin Distel

Stock trading is the practice of purchasing and selling shares, or ownership, in a publicly traded company.

Traders sell their shares in an effort to profit off of fluctuations in the stock’s price movements. Depending on the investor’s trading strategy, this capitalization can take place over the span of minutes, hours, days, months, or even years. Essentially, there are two primary types of trading:

  • Active trading: When an investor places more than 10 trades every month, it’s known as active trading. Generally, investors rely on timing the market to capitalize on market fluctuations or company events.
  • Day trading: Day trading is a bit more complex, making it a strategy best saved for those who aren’t just learning to trade stocks. Day traders buy, sell, and close all of their positions within one trading day. Most of the time, traders using this strategy care less about technical analysis than they do about current events and market movements. Their goal is to turn a profit in the extreme short term, meaning minutes or hours rather than days.

How to Learn How to Trade Stocks

Before you can learn how to trade stocks, you have to figure out how to learn how to trade stock. In other words, you need to determine effective sources and strategies to gain the information you need to learn how to trade in the stock market. Here are a few solutions to the question, ‘How can I learn to trade in the stock market?’:

Learn the Lingo

You won’t get far if you don’t have at least a basic understanding of stock market terminology. Some of the common terms you’ll hear are:

  • Analysis software: This type of software allows you to compare a stock’s performance over time, giving you a comprehensive look at the market.
  • Bonds: Bonds are a fixed-income investment where an investor allows a government or corporate entity to borrow money with interest for a specific amount of time.
  • Cost-per-stock trade: This value is based on either the size of a trade, like the number of shares, or a trade’s fixed price, such as the principal value.
  • Currency trading: This type of trading, also known as Foreign Exchange, FX, or Forex trading, is accomplished by speculating on the movements of other economies.
  • ETFs: Exchange-traded funds, or ETFs, give investors exposure to a diversified group of assets. They are traded on the stock exchange like more traditional stocks.
  • Futures trading: Futures are a contract between a buyer and a seller in which they agree on a stock’s price and the future date that the transaction will be completed.
  • Margin: These are loans from a brokerage that investors use to purchase investments. They come with an interest rate, known as a margin rate, and are quite risky.
  • Mutual funds: Mutual funds are a lot like ETFs in that they are an investment comprised of a diversified group of assets. With this type of investment, investors pool their money to invest in securities.
  • Options: Like futures, options are contracts that set a date and price for assets to be bought or sold at. Unlike futures, the parties have the right but not the obligation to complete these trades within the specified amount of time.
  • Penny stocks: Sometimes the criteria for penny stocks can vary based on the brokerage firm, but most of the time they are stocks that have share prices at or under $1.
  • Real-time data: A real-time data feed, often supplied by online brokers, gives investors market and stock changes with very little delay, making it incredibly accurate. Most of the time, the data is delayed less than 10 minutes.
  • Real-time trades: Instead of holding trades to be executed at a certain time, real-time trades are made as soon as they are requested.
  • Research reports: Investors who don’t have the time or analytical skills to conduct their own research often rely on research reports, which are detailed reports containing relevant market data.

Open a Brokerage Account

Prior to beginning trading, you’re going to need access to the market through some sort of brokerage account. Though it is possible to buy stocks without a broker, working with stockbrokers can be extremely educational when you’re first starting to learn to trade in the stock market. You can either use a traditional, personal stockbroker, or you can opt for an online broker.

Online brokers tend to be a bit cheaper than professional stockbrokers, allowing you to keep more of your returns, but they also provide considerably less financial guidance. Ultimately, you’ll have to assess your comfort level and knowledge of the stock trading process to decide which is right for you.

Read Books and Articles About Stock Trading

One of the best and most inexpensive ways to learn how to trade in the stock market is by reading educational stock trading books and articles. These types of resources should be easy to find; just make sure that the source is reliable before you take any advice.

Find an Investing Mentor

When learning about trading stocks, a stock market mentor is a great way to gain real-life insight and expertise. This can be a family member, a friend, a professor, or a coworker. Your mentor should:

  • Have a fundamental understanding of trading and the stock market.
  • Be successful.
  • Have experience.
  • Be willing to spend their time and energy to guide you through your own stock trading.

A truly effective mentor will be there for you as you learn, lifting your spirits, recommending resources, providing assistance, and answering any of your questions.

If you don’t know anyone who fits the bill, online forums can be a useful place to get answers to questions. Just remember that the participants of these forums aren’t vetted, meaning they aren’t always professionals nor are they particularly profitable, so take any advice with that in mind.

Learn From the Experience and Advice of Successful Investors

No matter what you’re doing, it’s always a good idea to learn from the greats. Some investors who are widely considered to be great are Paul Tudor Jones, John Templeton, Peter Lynch, Benjamin Graham, George Soros, Jesse Livermore, and Warren Buffett. By learning their stories and strategies, you can gain some important insight, perspective, and, most of all, inspiration.

Stay Current on the Stock Market

Watching and reading stock market news reports is a great way to not only stay up to date about things happening in the stock market but also to become more familiar with some of the industry lingo.

Participate in Classes and Seminars

Seminars, webinars, live classes, and online courses are all a great way to learn about specific types of investing and different investment strategies. Just like with any other advice or information that you absorb, make sure that the source is credible and be wary of any sales pitches that come with them. It’s easy to get caught up in the hype of someone’s incredible success story.

Practice Using a Simulator

If you’re still a little hesitant to start trading with real money, there are quite a few trading simulators out there that allow you to practice buying and selling stocks before you dive in. Once you do get started, don’t be afraid to take things slowly at first as you get your bearings.

How to Learn Online Stock Trading

R ealistically, how to learn trading online takes the exact same steps as learning how to trade stocks in a more traditional way. In fact, thanks to the prevalence and cost of online brokers, most investors use online trading platforms these days. The biggest difference is that you won’t have access to a personal broker who can give you individualized advice about your trades and goals. Because of this, take a little extra care when you’re learning how to trade, do your research before you make a trade, and make sure you have a strategy in place before you get started.

Experience comes with time, and with it, expertise. Before you know it, you’ll feel like trading comes naturally. Until then, take advantage of all the tools and resources at your disposal. Knowledge will be your most useful asset as you enter this exciting chapter.