Stock Trading 101 : Everything You Need to Know

stock trading 101

You probably know how important stock trading can be …

Here’s the problem: Stock trading sounds simple, but we’re never really taught how to do it. How to trade stocks isn’t something we pick up in school. It’s something most of us have to figure out on our own.

Anything you don’t know can seem scary at first. So let’s demystify the world of trading.

Here’s my guide to help you make sense of it all.

Download the key points of this post as a PDF

Following the Smart Money: Level II Explained

What Is Stock Trading?

When you trade in a company’s stock, you’re buying shares, or part ownership, in a corporation. That means you own part of the company’s assets and may be entitled to some of their earnings.

Stocks can come in two main forms. If you buy common shares, you usually get the right to vote in company decisions, but you aren’t guaranteed any kind of dividend. The other type is preferred shares, which don’t come with voting rights, but there’s usually some kind of dividend payment.

In the past when you bought stocks, you’d actually receive a paper certificate. Now most stock ownership is handled electronically.

So what about when you hear in the news that the entire stock market moved up or down?

Most public stocks are listed on a major stock market index, like the S&P 500 or Nasdaq. These indexes can give a good overall view of the market since it’s near impossible to keep track of every stock.

So when you hear that the Dow Jones Industrial Average is up or down a number of points for the day, that means the entire index of stocks lost or gained value.

Daydreaming: Your Brain At Its Best

Stock Market Trading for Beginners

You can think about the stock market kind of like an auction. Traders from around the world come together to negotiate prices and buy and sell stocks.

In the past, most stock trading took place physically at exchanges like those on Wall Street. But now, the majority of stock trading is done electronically through online brokers.

People buying stocks make bids — the price they’re willing to pay. Sellers have an ask price: the minimum amount they’re willing to accept for the stock they’re holding.

The stock price is determined by supply and demand. It can be influenced by the company’s financial performance, news events, and a slew of other factors.

If you’re a beginner in the markets, it can be smart to start by picking one trading style. There are tons of ways to approach the stock market. The strategy you choose really depends on your situation and goals.

If you have a high tolerance for risk and you want to participate in the stock market multiple times a day, you might want to be an active trader, day trading or scalping.

But if closely following stocks and jumping in and out of trades isn’t viable, you might consider a more passive strategy and focus on the long term.

Some traders look for fast-growing companies. Others try to find undervalued securities to purchase.

These can all be valid trading strategies, and there’s really no right or wrong choice. It comes down to what works best for you.

Improve Your Trading Portfolio by Improving Your Discipline

Stock Trading as a Profession or Career

Is it really possible to make a living from trading stocks?

That’s a loaded question … so let’s break it down.

Here’s the thing: Technology’s really lowered the barrier for entry for those who want to trade. Pretty much anyone can trade. It’s ridiculously easy to get set up.

And you can trade part-time, full-time, or even just for extra income.

The internet’s made it possible to trade from almost anywhere in the world. Lots of traders work from the comfort of their own home. And there’s always a stock market open somewhere in the world, so you can trade at any time (make sure you fully understand those markets first!).

All those factors can make trading appealing for people who crave flexibility. And in some cases, you need little capital to get started.

That’s not to say that stock trading is an easy profession.

The reality is that not everyone’s cut out for it. Trading can come with its share of stress and uncertainty. You will lose trades. And you have to learn to keep your emotions out of it. That’s not always easy.

Most people interested in stock trading as a career want to do so independently. That can be an easier option: trading from home can be flexible and fit into most lifestyles.

That flexibility can come with a big responsibility too. Find ways to hold yourself accountable for your trades and your continuing education in the markets. Connecting with peers in the StocksToTrade Pro platform is one way to do that.

You can work with a mentor … more on that in a sec.

First Steps to Trading

How to Buy Stocks

If you’ve never actually bought stocks before, you may not be sure how to do it. There’s not exactly a standard high-school class that teaches you about the stock market or how to invest.

Before you do anything, you need to educate yourself (you can start here). The setup itself is pretty simple … Really you just need to open a trading account and have access to a solid trading platform where you can trade and follow the market, individual stocks, news, and more.

Open a Broker Account

To start trading stocks, you’ll need your own trading account. This might be a service offered by your bank or a third-party company like E-Trade.

A brokerage account is what you use to trade individual stocks and a number of other types of investments.

There are several options … You can open a taxable brokerage account or an IRA (individual retirement account). It depends on your objectives — saving for your future, short-term goals, or both.

Before you open an account, be sure to consider every service the broker offers, as well as fees and commissions that come with trading. Once you decide on a firm, you just need to apply for a new account and fund it. Boom. You’re ready to start trading.

Find a Platform That Gives You Actionable Data

So you’re set up with a broker account … you’re ready to trade! Or are you? How do you know which stocks to buy and sell?

Here’s your next step: Find a trading platform that can provide you with actionable data. You wanna trade? You gotta dig into some serious research first.

Learning the stock market basics can be a big task. Don’t think it’s something you’ll pick up overnight. Even smart, seasoned traders know that their market education never really ends.

That’s why it’s critical to have a reliable trading platform. Your approach to trades should be thoroughly researched, using charts and tools to help you find potential trades.

Once you’re set up with a platform to monitor and track stocks and a trading account, it’s time to start buying.

Buying Stocks Online

Placing your first buy order can be nerve-wracking. There’s so much emotion that can come up once you lay real money on the line!

Not ready to throw down cash just yet? That’s OK — and probably smart. You can practice trading first …

Paper Trading

Money’s not always easy to come by. And if you’re not ready to trade with real cash yet, that’s not necessarily a bad thing. You want to make smart trades, right? So try paper trading before you dive into action.

Paper trading is essentially simulated trading. Think of it like a fantasy baseball league, but for stocks. You can track, buy, and sell real stocks without having to actually risk any cash.

StocksToTrade comes with a paper trading feature. It’s a chance to test strategies before making a real financial commitment. And it’s not just for new traders, either. Experienced traders often paper trade to test new strategies.

Be smart about paper trading — treat it like a real money trading. This is part of your trading education. And the point is to make trades that you’d actually make with real money. Build a watchlist, track your stocks, and record every move in a trading journal.

Narrowing down what works for you in the markets can be way easier if you keep records of every move you make, from your trade theory to your entry and exit points.

Avoid high-risk decisions that you wouldn’t actually make in real life. Paper trading can help you become comfortable with the reality of buying and selling stocks. Make the most of this feature!

Position Trading

A position trader holds a stock for the longer term.

So what defines ‘long term?’ That can vary from trader to trader. But generally, position traders hold stocks for weeks, months, or even for years.

This strategy isn’t as active as other strategies, so position traders tend to worry less about current events or short-term stock-price fluctuations. They focus more on the stock’s overall strength and fundamentals.

Contrast that with day trading, where the goal is to profit on daily short-term fluctuations. Day traders buy and sell the majority of their stocks within the same day. It’s rare that they’ll hold any given stock for more than a few days.

For new traders, position trading can be a less stressful and demanding strategy where you can learn about stock market trends.

Take Advantage of StocksToTrade Features

Ready to see what you can do in the market? Get the tools you need to start researching and trading in one place with StocksToTrade!

Not too long ago, traders had to use multiple tools, jumping between different software, apps, and websites. With StocksToTrade, you can get it all in one powerful platform: charts, social media trends, SEC filings, technical indicators, and more …

Our StocksToTrade members can attest to the power of a great scanner. Get a 14-day, $7 StocksToTrade trial now and see what all the buzz is about!

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Conclusion

Trading stocks can seem intimidating … and for a good reason. Your cash is on the line, so you want to make intelligent moves.

Just because you didn’t learn how to trade in high school or college, that’s no reason to balk education. If you’re serious about trading, be serious about your trading education.

StocksToTrade Pro can help you in your trading education with a community of trading peers, webinars, and mentorship. Don’t feel like you have to face the markets or learn everything on your own. STT Pro can be your opportunity to take your trading to the next level.

See how a stock screener can help you in your trades with actionable data …  whether you’re saving for retirement or looking to trade full-time. Check how the StocksToTrade tools can help you face the markets.

What’s your trading experience? Are you a total newbie? Tell me what excites you the most about the stock market! Leave a comment …

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