Learn Stock Market Trading (Beginner’s Survival Guide)

So you’re interested in stock market trading?

The market’s been so hot in the past year, it’s drawing a lot of new traders into the fold.

The thing is … there’s a ton to learn, and there’s so much information out there. In the beginning, it can feel like you’re drinking from a fire hose. Where do you even start?

I’ll break down the basics here. Think of this as a beginner’s survival guide to learning stock market trading.

What Is Stock Market Trading?

The stock market is a collection of exchanges where people buy and sell shares of publicly held companies. Stock market trading is the buying and selling of those shares in an attempt to make a profit. 

And there are plenty of ways to get into the markets, from short-term strategies like day trading to longer-term strategies like position trading. It’s all about what best fits your schedule and account size.

How Stock Market Trading Began

Stock markets have been around longer than the U.S. Merchants who wanted to build large businesses but didn’t have enough capital would pool their money and form joint-stock companies.

In 1602, the Dutch East India Company became the first publicly traded company. The Amsterdam Stock Exchange was also formed in 1602 … And for years, the Dutch East India Company was the only company that traded on it.

How Stock Market Trading Works

Stock trading works like an auction. Buyers and sellers negotiate prices, and when they agree, it leads to a trade.

The stock market runs through a network of exchanges such as the New York Stock Exchange (NYSE) and Nasdaq. Companies list their shares on these exchanges, where investors can buy them. Selling shares allows companies to raise money to expand. 

Not every stock is listed on a major exchange. There are over-the-counter (OTC) markets for those. Smaller, less established companies can sell their shares on the OTC Bulletin Board or via the pink sheets. Penny stocks — generally those trading under $5 a share — usually trade on these markets.

Players of the Stock Market

There are a lot of moving pieces in the stock market. Let’s take a look at some of the key players that make it run…

Traders

Traders are the people who trade stocks. Their primary goal is to make a profit by timing price movements in the market. You know the expression, ‘buy low, sell high.’ That’s pretty much every trader’s goal, unless you’re shorting. But that’s a conversation for another day.

Stockbrokers

Stockbrokers also buy and sell shares, but they do it on behalf of other people. Most of them work for brokerage firms and handle transactions for multiple clients. Learn more about brokers here.

Corporations

Corporations are the companies that list their shares on the stock market. They benefit from stock market trades because it’s how they raise capital to spend on their businesses.

The Main Types of Stocks (Based on Ownership Rules)

Just like there are different types of players in the stock market, there are different types of stocks. Let’s take a look at the most common you need to know as a stock market trading beginner…

Common Stock

In general, when people talk about stocks, they’re talking about common stocks.

Common stocks represent ownership in a company, including a claim on a portion of the company’s profits.

Preferred Stock

Preferred stocks don’t usually come with the same voting rights as common stock. The advantage of preferred stock is that it gives the holder a higher claim to dividends.

Hybrid Stock

A security has either equity (asset ownership) or debt (loan) characteristics. A hybrid stock has a combination of the two. 

Because a preferred stock confers ownership like common stock and pays regular dividends like a bond’s coupon, it’s considered a hybrid stock.

Stock Market Trading: How Are Stocks Categorized? 

One way of categorizing stocks is by market capitalization — market cap for short.

The market cap of a stock is the market value of a company’s publicly traded outstanding shares. Multiply the number of a company’s outstanding shares by its stock price and you’ll have its market cap.

Small-Cap Stocks

When a company is valued between $300 million and $2 billion, it’s considered a small-cap stock. A small-cap company might be relatively young but have promising growth potential.

Mid-Cap Stocks

Mid-cap companies have values between $2 billion and $10 billion. These companies may not be industry leaders, but they’re probably headed in that direction.

Large-Cap Stocks

Large-cap companies are valued between $10 billion and $200 billion. These companies are generally stable and secure. Their stocks, called blue chips, tend to have a history of strong performance.

Other Types of Stocks on the Market

Growth Stocks and Value Stocks

Growth stocks are those that are likely to see rapid sales and earnings growth. These companies generate large and sustainable cash flow … and their stock prices are higher.

Growth stocks don’t usually pay dividends, because the companies want to reinvest their earnings and continue to grow.

A value stock is one that buyers see as undervalued because its fundamentals seem solid.

Domestic Stocks and International Stocks

Domestic stocks are U.S. companies’ shares. International stocks are those issued by companies outside the U.S.

Some buyers turn to international stocks to diversify and hedge their risks in case the U.S. market turns.

Dividend Stocks and Non-Dividend Stocks

Dividend stocks pay regular dividends, providing shareholders with a regular income stream.

Non-dividend stocks are companies that reinvest their profits into the company.

Income Stocks

Income stocks are stocks that pay regular, often increasing, dividends. These stocks are less volatile than the overall stock market.

IPO Stocks

IPO stocks are the first shares sold when a company goes public. An IPO (initial public offering) enables a company to raise capital for further growth.

Cyclical Stocks and Non-cyclical Stocks

Cyclical stocks follow the trend of the economy closely. They’re companies like restaurants and hotel chains, which tend to do better when the economy’s strong.

Non-cyclical stocks can outperform the market even when the economy slows. Apple Inc. (NASDAQ: AAPL) and Zoom Video Communications (NASDAQ: ZM) are examples of non-cyclical stocks.

Blue-Chip Stocks and Penny Stocks

Blue-chip stocks are shares of strong and established companies. They’re your AT&Ts, Procter & Gambles — household names. Blue chips are viewed as reliable investments, and their share prices are generally higher. 

Penny stocks, in contrast, are smaller companies that may not be around in the future. Because they tend to be risky, penny stocks are lower priced. A penny stock is generally one trading under $5 a share.

The Different Types of Stock Sectors

A stock sector is a group of stocks that are similar, usually because they’re in the same industry.

Stocks run in packs. Thinking about stocks by sector allows traders to track price movements better so that they can make smart decisions.

Let’s take a look at a few popular sectors…

Healthcare

The healthcare sector includes biotech companies that develop and manufacture pharmaceuticals.

The sector also includes healthcare equipment and services. Diagnostic tools, surgical supplies, and health insurance all fall under healthcare.

Industrials

Industrial companies are businesses that use heavy equipment. Here you’ll find airline, aerospace, construction, and railroad companies, as well as building products and machinery manufacturers.

Real Estate

This sector includes companies that develop and manage real estate projects. That includes real estate investment trusts (REITs).

IT (Information Technology)

The IT sector includes computer hardware, software, and services companies.

Other Important Sectors

Hot sectors come and go. Cannabis, electric vehicles, cryptocurrencies, precious metals, and financials have all had some recent action.

The Different Markets for Trading

When you hear the word trading, you might first think of the stock market … but it’s not the only market for trading.

Here are a couple of other common markets…

ETF Market

ETFs, or exchange-traded funds, represent all sorts of stocks, commodities, and even currencies. The funds trade similar to stocks —  they can be bought or sold for the short or long term.

Options Market

Options are derivatives based on the value of a security. Stock options trading doesn’t involve ownership of the stock … the option price is tied to the stock’s value.

Bull and Bear Markets: What Are They and Why Are They Important?

A bull market is when the market’s rising and everyone expects it to keep on rising. It’s correlated with a bull because a bull thrusts its horns in the air when it attacks.

A bear market is the opposite. It occurs when the market’s going down and is likely to continue going down. It’s called a bear market because a bear swipes down with its paw when it attacks.

Knowing whether we’re in a bull or bear market is important. It can be risky to go against the market’s long-term direction.

Stock Market Trading: How to Start as a Beginner

Get the Right Equipment

Thanks to technology, it’s not hard to get started trading. Make sure to get a decent laptop and reliable Wi-Fi. 

Once you have that, you can go to the next step.

Open a Brokerage Account

If you want to buy and sell stocks, you’ll need a brokerage account.

There are a bunch to choose from, and some are better than others, depending on what you need. Need help choosing one? Read this.

Study, Study, Study

The first thing you want to do is get yourself educated. If trading was easy, everyone would do it full time.

Before you step into the ring, learn about how the stock market works, and find setups that work for you. StocksToTrade has a ton of free resources, like our no-cost weekly watchlist, the SteadyTrade podcast, and the StocksToTrade blog. 

Interested in taking your education to the next level? Join our SteadyTrade Team community, where like-minded traders receive mentorship and learn from each other. Trading is hard. You don’t have to go it alone.

Tips for Trading the Stock Market

Look for Stocks That Are Already Moving

Trading stocks isn’t about getting into a trade before a stock starts moving. Traders want to find stocks that are already moving and try to catch a good and predictable part of the move.

A serious trader also needs good scanning software. My favorite, StocksToTrade, was built by traders, for traders. It has powerful scanning software, plus beautiful charts, news feeds, and much, much more. Try it for two weeks for just $7.

Keep Watch for Catalysts

The hottest stocks move for a reason. Sometimes a stock will move big without any news, but the more powerful and sustainable moves have some sort of catalyst behind them creating momentum.

If a stock is moving on really good news, it has a better chance of continuing the momentum.

Stock Market Trading: Analyzing Stocks 101

Technical Analysis

It’s worth mentioning technical analysis again because it’s one of the most important and effective things you can do to analyze a stock.

Ever hear the expression, “Study charts until your eyes bleed?” Yeah, well … it’s true, and you probably heard me say it. Stock trading students have to study charts until they’re tired of looking at them.

Fundamental Analysis

Fundamental analysis involves analyzing a stock based on the company’s strength. That means looking at debt, earnings, equity, and sales numbers.

The goal is to gain insight into the company’s future to get an idea of whether its stock price matches its value.

Keep an Eye Out for Volume

Just because a stock is moving doesn’t mean you should trade it.

If there aren’t many people trading it, it could be hard to get out of the trade. Traders look for a stock’s volume to help determine if it’s liquid enough for them to get in and out of a trade.

Volume can also be an indicator of whether a stock move will continue.

Analyst Recommendations

Analyst recommendations are a quick way to analyze a stock. There are a lot of smart people who get paid to analyze stocks using different types of research. 

Investors and traders use analyst recommendations in conjunction with their own research. 

Stock Market Trading Strategies

A stock market trading strategy is a set of rules a trader designs to help maximize profits or minimize losses. Every trader’s style and strategy is different. You’ll have to pick the ones that fit your trading style. Here are a few to keep in mind…

Trading Penny Stocks

One of the biggest challenges for many beginning traders is that they don’t have a lot of capital.

Some traders choose penny stocks because they’re lower priced and it’s possible to trade them with a small account.

A lot of penny stocks are volatile … and that’s important for many trading setups.

Aim for Singles

It’s really easy to get caught up in going after home runs and making large sums of money.

The best traders focus on aiming for singles. And by focusing on smaller gains, they’re able to make smarter decisions instead of worrying about losing big chunks of cash.

Use a Journal

You’re going to make mistakes in your trading journey … that’s a given. You can use those mistakes to improve.

It’s important to keep a trading journal and track which strategies work and which don’t work so well. Traders who use their mistakes as lessons tend to be less likely to repeat them.

How to Buy a Stock

The process of buying a stock is easy once you have a brokerage account. Each one has its own trading platform.

StocksToTrade’s broker integration feature lets you link accounts, so you can research, plan, and execute trades in one place.

How to Survive Stock Trading 

Stock market trading takes a long time to master. It takes patience and commitment.

A lot of the super successful traders you see took years to get where they are … and no doubt they had a lot of failures along the way.

Preparation is important for anyone who wants to build stock trading skills.

Stock Market Trading: How to Assess Risk

When it comes to assessing risk, you want to know both what you can lose and what you can gain in any given trade.

A good rule for stock market trading might be to look for a potential reward three times more than what you might lose.

Frequently Asked Questions About Stock Market Trading

How Do I Learn Stock Market Trading?

Studying is important if you want to trade the stock market. Once you have some basics, the best way to learn is by doing actual trades.

You don’t have to learn using real money. With a trading platform — like StocksToTrade — that allows you to paper trade, you can participate in the live action without putting your capital at risk. 

Can I Start Trading With $100?

It’s possible, but I don’t recommend it. Some brokerages have minimum requirements for opening an account … so if you only had $100, your choices would be limited. Focus on learning all you can about stock market trading as you save for an account. Never trade with money you can’t afford to lose.

What Are the Best Stocks to Buy for Beginners?

This is a tricky question. It depends on your strategy. There are so many different stock types and probably even more strategies. Some traders like to start with low-priced penny stocks … but these can be volatile, and there’s risk involved. Do your research to find what suits you best.

Is Trading a Good Career?

Another tricky question.

Some people make a lot of money in stock market trading … but there are way more who don’t make any money.

Some traders like to trade for themselves because they don’t want to be tied to a 9-to-5 job. But it can be lonely. And of course, there’s no guaranteed income.

Conclusion

There you have it … the beginner’s guide to stock market trading.

Learning stock market trading can be a challenge … You must be willing to put in the time and hard work.

It can help if you’re part of a team that keeps track of the market every day … That’s what our SteadyTrade Team community is all about. We meet twice every trading day to learn about the stock market, research, and trading patterns … Who you surround yourself with matters!

Why do you want to learn stock market trading? Let me know in the comments!