Have you wanted to get into the stock market, but don’t know where to begin? Are you an amateur trader like me that has very little capital to invest? If you said yes to either of these questions, congrats we are in the same boat of untapped potential! I will try to share my mistakes, tricks, and tips as I am a year or two into equity trading. This article will focus only on trading shares of a company; not options, futures, bonds, mutual funds, etc. Those investment strategies are much more complex and beginner traders should not worry about these just yet. The reason why people invest their money in the stock market is because your money is doing absolutely nothing in the bank. It is merely just sitting there and making maybe five cents per year. Also, the bank takes it upon themselves to invest your money anyway and reap the benefits of the returns they make on your money. So logically, why not just invest the money yourself and reap the benefits. That being said, there is plenty of risk involved with investing, and I would recommend still keeping a good amount of money saved up.
First of all, it is important to understand what the stock market actually is. A stock market is simply a place where people buy and sell equity (or shares) of a particular company. Based upon many different factors, the price of this equity can increase or decrease. You can buy and sell stock with a brokerage firm. These companies include TDAmeritrade, Scottrade, E-Trade, Fidelity Investments, and many more. They all have websites, which you can sign up for and deposit money into. These companies will charge a 6-10 dollar commission fee every time you initiate a transaction. However, the Robinhood app is a wonderful platform for those looking to get their feet in the water because they do not charge a commission fee and they only allow you to trade stock. The primary goal of trading is to sell your shares of a particular company at a higher price than you buy them for. Some companies also pay out dividends, but the return from dividends is minuscule compared to actually buying and selling. Below are some answers and tips that I believe may be helpful for amateur traders.
1. Know What You’re Getting Into
Do not make the mistake I made and just jump into the stock market for the sake of doing so. Wait for the right time to get in. You need to make sure the money you are investing is not vital to your survival. This means that the capital you are investing should mostly be discretionary (aka it is not the end of the world if you lose it). Have a plan. What price do you want to buy it at? What price to want to sell it at? Put a time period on your investment. Don’t just wing it
2. Do Your Homework
You are not going to be successful by picking an arbitrary company and investing in them. Do your research. Look at the companies 10-K’s and make sure they are in good standing. Look at their charts for particular patterns. You need to read and understand what the company does and how it is managed. Look up the company’s EPS, volume, P/E, Market Cap, 52-Week Range, and many other indicators. If you don’t know what these mean, that is okay. Look up what they mean and connect the dots. Do these numbers as well as the company’s internal status reflect well on the company? Just like anything in life, it is vital that you put in the work to get the results that you want.
3. Watch/Read/Listen To The News
News about a company, whether good or bad, can have huge implications on the price per share of a company. I am not saying you have to read the Wall Street Journal daily, just don’t be oblivious.
4. Trade Value
As Warren Buffet puts in “Price is what you pay; value is what you get. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Everybody loves a great deal. So, if you think a company is strong and you see it’s price going down, maybe it is a good time to buy. As logical as it seems, people tend to fret when they see companies in the red. Sometimes rightfully so, but at other times it can be seen as an opportunity.
5. Be Decisive and Don’t Be Greedy
Cut your losses at around 10% and take your earnings at around 20%. Don’t be greedy and try to hold onto to your investment in order to make even more money than you already made. On the flip side, admit defeat and sell your shares when your company is losing a good deal of money. Don’t let your emotions get in the way and don’t get attached to a particular company.