Stock Trading for Beginners: STT’s Definitive Guide

Stock trading for beginners

Stock trading for beginners is highly appealing for a number of reasons: it’s easily accessible, it can be exhilarating, and it offers the potential for profit.

That last one’s key for a lot of people, right? Unfortunately, too many traders are blinded by chasing money — they don’t take the time to learn the market and trading basics before they start to trade.

They jump into the market too quickly, without enough knowledge to make calculated trading decisions. That’s likely the biggest reason many new traders are destined to fail — they simply don’t understand how the market works.

Don’t be one of those traders.

Just as in any other venture, it’s vital to seek proper training before you embark on your trading journey. In this post, I’ll explore some of the key basics that every new trader should know.

Stock Trading for Beginners

The stock market, and especially the world of low-priced stocks, is inherently risky. This can be both good and bad for traders.

The same volatility that has the potential to help you earn profits can also decimate your account — fast.

So before you begin to put your hard-earned cash on the line in the stock market, here are some things you should know:

Best Stock Trading Sites for Beginners

If you’re new to the market, you probably wonder where you should start.

You can find plenty of basic trading information online, but eventually, you’ll need to find a stock screener and a trading platform so that you can begin researching and executing trades. And just to clarify…

  • A stock screener is a program that allows you to research stocks based on various indicators and criteria that you set.
  • A trading platform is where you execute trades.

StocksToTrade offers both stock screening and trading capabilities within one single program.

It’s a powerful, trader-designed screening program that includes plenty of great indicators and information about stocks … And it also features broker integration. That means you can execute trades right from the platform without toggling repeatedly from monitor to monitor.

What Is a Stock Trader?

A stock trader is a person who invests in stocks. This could be an individual at home on their laptop or a professional trader working for a finance company.

I’m primarily focusing on the former: An individual who independently trades and whose account may be small or large.

As an individual stock trader, you’re not required to have a professional certification or any licenses. Really, all you technically need to get started is a brokerage account and a computer…

But that comes with a big fat caveat.

Just because you can get started that easily doesn’t mean you should — it’s important to thoroughly understand the market and trading mechanics before you start risking your capital.

Best Times to Trade, and Why

Stock Market Basics

Before you dive into live trading, it’s wise to learn and understand a few stock market basics. Here are some things that every trader should keep in mind:

Focus on Price

It can be easy to get caught up by the hype surrounding a particular stock or sector. But don’t be blinded by the buzz around a company. Do your research. Always look at the stock’s price action before taking a position.

As a trader, you hope to profit from price fluctuations on a given stock. You’re looking for the stock price to go up for long positions or to drop if you’re short selling.

If you want to enter a trade, you need to do everything possible to figure out if the stock price could move in the direction you think or hope.

Unfortunately, it’s impossible to predict the future — otherwise, trading would be a cinch. So until you have a time machine, the best you can do is perform detailed research on the stock’s price action.

Focus on the stock price. Look at its past performance and try to figure out if there are any patterns that seem to repeat over and over. This can be an indication that the stock may perform similarly in the future.

For example, if you notice that the stock price of a mass retailer has gone up every year for the past three years following their fourth-quarter earnings announcement, this could indicate that shortly before their earnings announcement could be a good time to consider buying shares.

Stay Liquid

In the stock market, liquidity refers to how easily a stock can be bought or sold without having an impact on the stock’s price in the market. If you want to buy and sell a stock quickly at its full value, you need a stock with a relatively high level of liquidity.

Illiquid stocks can be tempting … they can show great volatility. But they’re tricksy little hobbits. If there isn’t enough liquidity, you may not be able to enter and exit positions easily. And you can get stuck in the trade.

So before you jump into a trade, be sure to check out the stock’s trading volume. You want to make sure that enough shares are moving that if you want to buy or sell, you’ll be able to get offers that match or are close to the asking price.

Practice Before You Jump In

If you decide to go parachute jumping, you’d probably take a few practice runs on land to learn how to operate the parachute before diving out of the plane.

Why not apply the same philosophy to trading? You want to protect your capital as much as possible, right? It’s smart to try virtual trading before you dive in for real. Fortunately, there’s a module for that: It’s called paper trading.

Paper trading is like virtual reality trading. It’s simulated live trading where you can select trades, determine entry and exit points, and execute orders — just like you would with a live trading account. Only with paper trading, you’re not risking actual money.

Where’s the fun in that, if you can’t make actual money? Well, it may not build your actual account, but it’s a big investment in your knowledge and experience account. And there’s HUGE value in that.

By paper trading, you can get a real-time education in the market. It gives you the chance to get a feel for different order types and the market, as well as the opportunity to test out strategies.

For many traders, this stepping stone to real trading can help them refine their techniques and get familiar with the process of trading. On StocksToTrade, we offer a comprehensive paper trading feature so that you can learn the ropes in the market and test out strategies.

Don’t Try to Outthink the Markets

Think you can outfox the market? Think again. It’s a simple fact: The market is bigger and stronger than you.

For a moment, picture yourself as a surfer surveying the ocean. While you can research things like the water temperature, wind direction, and the timing of the high and low tides, there’s no way you can know how the big the waves might be or exactly how they might crash. There are just too many factors in play.

But if you love surfing, will that stop you? Not likely. You’ll probably go out in the water and try to catch waves based on what you see and know.

What’s that got to do with the stock market. Like the ocean, the stock market has too many factors at play for anyone to ever predict its movements to the letter.

Don’t try to beat the system — learn the system as best you can. And keep learning. Look at what makes stocks move, and learn from patterns that repeat over and over. Don’t try to bend the market to your will, but rather try to learn its currents and work with them.

Stock Market Crash Versus Correction

Nothing strikes fear in a trader’s heart quite like a sharp drop in stock prices (unless you’re short selling, that is).

But when prices drop, is it the modern equivalent of Black Tuesday? Not necessarily. Let’s discuss the difference between a stock market crash and a stock market correction:

  • A stock market crash refers to an extremely fast and sharp drop in prices in a short period of time, sometimes in a single day, or over several days. This is the type of event that precipitated the great market crash of 1929, which kicked off the years-long Great Depression. But stock market crashes don’t always last quite as long. Usually, they happen after a sustained period of uptrending in the market.

  • A stock market correction refers to a drop of at least 10% from the market’s recent highs. Market corrections occur more frequently than stock market crashes — once a year isn’t unusual. But unlike a crash, these are usually short-term price dips.

Bull Markets vs. Bear Markets

Different types of markets call for different trading strategies. There are two primary types of market moods that you’ll hear about as a trader: a bull and a bear market. What’s the difference?

  • A bull market refers to times when stock prices are uptrending, or there’s the expectation that prices will rise in the near future. There’s a lot of optimism in a bull market, and investors are rushing in … like a bull running toward a red flag. A bull market is usually characterized by a 20% rise in stock prices, frequently preceded by a price drop. In general, a bull market is the time to go long with trading. This is when traders expect stocks to go up in price. They’re buying in the hopes that their securities can increase in value.
  • A bear market, on the other hand, tends toward hibernation and caution. During a bear market, prices trend down, or there are expectations that prices will decline in the near future. 

It’s usually characterized by a 20% drop in stock prices. The mood is generally pessimistic, and many traders steer clear of taking long positions since the expectations are low. But for short sellers, a bear market can be a great time to pounce in the market, taking advantage of falling prices.

Both bear and bull markets can be tricky to define. Usually, traders stick to the “20% rule” … If stock prices rise 20% that means a bull market, and the opposite means a bear market.

But since pullbacks and price increases happen all the time, it may be hard to tell what type of market we’re in until we’re already in it for a while.

Take Advantage of StocksToTrade Features

There’s no doubt about it: Choosing stocks to trade can be extremely overwhelming.

There are thousands and thousands of stocks vying for your attention. So which are worthy of your time? Only time and thorough research can tell.

A great stock screener can help you filter out the noise by helping you whittle down the choices based on the particular criteria that you choose.

StocksToTrade is full of features to help you build the solid watchlist and access a variety of popular technical analysis tools like VWAP and Bollinger Bands, links to relevant news that could affect a stock, and more. And with broker integration, you can also execute trades right from the platform.

Choosing stocks can be tricky …  so start thinking like a savvy trader and put good tools to good use.

Why not let StocksToTrade help you with some of the heavy lifting? By filtering down your choices to a succinct watchlist, you can better formulate strong trading plans and approach the market in a more calculated way.

Get a 14-day trial of StocksToTrade for just $7 today!

Conclusion

Embarking on a career as a trader is exciting, but don’t enter it lightly. Too many new traders fail because they don’t take the time to learn market basics before they start trading. They can be overly confident…

And their trades often amount to little more than gambling.

Slow your roll! The markets will always be there. Take time to learn the markets. Find a strategy that suits you and practice it. Learn different chart patterns and how to spot them.

Get a strategy in place to help you cope with the emotions that can come with risking your money — oh yeah, they’re real.

Take the time to learn the trading basics before you jump in and start executing orders. And take a proactive stance toward what will hopefully be a long-term and satisfying trading career.

What’s your biggest market fail and what’s your most valuable trading lesson so far? Leave a comment and let me know!

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