So you have decided to start trading stocks, congratulations! The journey to success through stock trading is not an easy one, but can be rewarding if done right. Your first question is probably how you should get started. This chapter will provide you with a general guideline on the steps you should take so that you are able to independently navigate the stock market.
1. Figure out your goals – What do you hope to achieve out of trading stocks? While many people will say they want to get rich quickly, this cannot be the only thing that you have on your mind. Greed is one of the worst enemies a trader can possibly face, understand why you want to trade stocks and set achievable goals very clearly.
2. Finding capital – As a general rule of thumb, you will require at least $1000.00 if you want to start trading stocks. Of course, if you want to invest in mutual funds or take a long-term position, you might need a larger sum of money. Many reputable brokers also have a minimum sum of money which needs to be put into the account first before you are allowed to use their platform.
3. Understanding the Game – To trade stocks, you need to have a very firm understanding of how the how the market can be entered. Read up on basic terminologies and jargons that are used in the industry. Here are some general concepts about you need to know:
- Going long/short: Going long means you expect the price to go up in the future and going short is vice versa. In scenarios where you are going short, you will make a profit if the shares decrease in price in the future.
- Leverage: You can borrow money from the broker to use as leverage or buy on margin. Using borrowed money allows you to take a much larger stock position than you otherwise would.
- Technical Analysis: Technical analysis is what traders use to analyze a stocks chart. It helps to determine a good entry and exit position. It also helps the trader understand the macro trend that the stock is headed in.
4. Paper Trade – Every new trader needs to paper trade before going into the market for real. As the cliché goes, practice makes perfect. The same holds true for trading where you need to be consistently in sync with the market to make the best trading decisions. While practicing with paper money might not necessarily stir the same emotions as when you use real money, it is a great starting ground for you to test your rules and strategies.