*Disclaimer: This advice is primarily targeted at traders (short-term), not investors who are investing long term. (People use the terms ‘trading’ and ‘investing’ interchangeably which is a HUGE NO-NO– Investing=expecting Long-term gains, Trading=expecting Short-term gains)
1) Understanding what your goal is and which brokerage company to use
-Before entering the stock market, understand what you are trying to achieve. Are you trying to make quick profit (more risk), or do you want to make profit in the long run (less risk)? If you want to make quick profit, you should trade stocks, and if you are trying to make profit in the long term, you should probably invest through dividends (money companies give to their shareholders quarterly or yearly depending on the company) or long term growth of the company.
-Next, you should pick a stock brokerage that will suit your goals
(Note that some brokerages charge a commission fee for every trade whether you buy or sell a certain amount of shares. For instance, if you sell or buy a certain amount of shares of a stock, you will have to pay a commission. ScottTrade would charge you $7 every time you buy or sell a certain amount of shares of a stock. This is the primary way stock brokerages make money. )
If you plan on day-trading many stocks, I recommend that you choose a stock brokerage that charges smaller commissions. Check out RobinHood (free commission) or ScottTrade ($7 commission fee/trade).
If you do not plan on trading a lot or want the best tools and charts, I highly recommend ThinkorSwim (see below.)
–RobinHood-> Pros: FREE Commission, $0 Minimum to open an account
Cons: Trading tools are extremely limited and the graphs are very barebones (not detailed). Cannot trade mutual funds, ETFS, options and other securities
–ThinkorSwim (I use this)-> Pro: Phenomenal trading tools, well-detailed and professional graphs, $0 Minimum to open an account, $600 bonus cash
Cons:$10 commission for each trade (quite expensive). 20 minute delay for chart data
–ScottTrade-> Pro: $7, Real time chart data, decent tools and graphs
Cons: Mostly specializes only in stocks, $2500 minimum in order to open an account
2) Cut Losses Immediately!
Never become emotionally attached to your stock. Just because you “think/feel” the stock will be bullish (go up) does not mean it will! Set a benchmark price, and if it drops below your benchmark, sell the stock.
For instance, you buy 1 share of AT&T ($37.50) , and you set a benchmark price of (35.00). Once the stock drops below 35.00, sell it immediately!
A majority of the time, the stock will continue to fall, and you will lose more money and opportunities for future trades and potential gains. Cutting losses immediately is very important because you can potentially lose all your money from one stock if you’re emotionally attached to the stock, or “Think/feel” that the share price will eventually jump back up (it probably won’t).Remember, if you lose all your money, you cannot trade any more (until you add more money on to your brokerage account). If you cut your losses immediately, you can make multiple winning trades.
-A tip to prevent this from happening (and to minimize risk) is to set a Stop-Loss Order. A stop loss order is a signal/feature to sell all your shares if it goes below a certain price (which you set).
Also, a famous method of limiting risk is Diversification. “Don’t Put your eggs in one basket.” Remember, if you put all your money into one stock, you may LOSE BIG. So buy shares of different stocks(usually from different industries, but that is your choice).
[I recommend focusing on two industries first because it is more manageable, and you will have a better understanding for those markets.]
3) Do NOT Listen to Faulty “free-stock pick” Promoters
When you start trading, chances are you’ll look online to see which stocks you should buy. I CANNOT STRESS THIS ENOUGH. Any stock pick that you received from a free website is 99% A SHAM. Scammers promote the stock, and hope that a lot of people fall into the trap of buying that specific stock. Once the stock prices rise (More demand of the stock=Higher price of stock), these “promoters” dump and sell all their shares. This process is called a Pump and Dump. They try to hype up a stock only to make a profit off naive/beginner traders.
An alternative (if you do not want to do any research) is to receive stock picks from a reputable website where you have to subscribe or pay in order to receive them. They will give more reliable stock choices, and most of them tend to be winners. A suggestion is : Peter Leeds Stock Picks at https://www.peterleeds.com/.
OR you can join a paid chatroom where you can listen to other experienced traders/investors and read up on what stocks they’re picking. Just remember that anything Free is NOT reliable.
4) Look at Trends
You would be amazed how many people receive potential gains by following trends. You can just follow a rising trend in a certain market, such as the fashion/food market, etc., and you’ll most likely make a profit in that market. You can do this by following social media, watching the news, and even talking with companies public relations members.
However, to be a phenomenal trader, this will not always work, and what you think may be a trend may not be (or the trend is dying). And to get a better understanding of trading, you will need to learn a lot more fundamental strategies such as reading financial statements and reading balance sheets (as in looking at the quality of the company), or technical strategies such as looking at stock graphs and recognizing certain trading patterns.
*Note that Fundamental and Technical Analysis is more broad than what I have just described.
5) Look for Positive Earnings
A majority of the time, when a company has phenomenal earnings, the stock price will rise because it shows that the company is performing well. By phenomenal earnings, I mean that you want to see the company exceed its earnings from previous years. The earnings are the first things shown on top of financial reports. In addition, they usually have a target earning, and if they exceed that, the company is exceeding expectations and its word is credible.
Although the best way to learn is through experience, you must READ in order to improve your trading methods, thought processes, and mindset. You will learn new trading strategies and learn how to be a disciplined trader (which I will talk about in my last point.) Reading is not exclusive to just books. It also includes reading the newspaper.
Some book suggestions include: Penny Stocks by Peter Leeds, How to Make Money in Stocks by William J. O’Neil, and The Intelligent Investor by Benjamin Graham.
This is the MOST important trait in stock trading. Just remember that when you develop discipline, you will know when to cut your losses and win big on trades in the future. Of course being a disciplined trader is more than just cutting your losses; having emotional control, doing your due diligence for certain stocks (making sure it is worth buying), and even building your knowledge are all important traits to develop.
To reiterate my previous point because it is VERY important: If you lose all your money, you cannot trade any more (until you add more money on to your account). If you cut your losses immediately, you can make multiple winning trades.
*Discipline is key*