How To Start Trading In Stock Market explained by professional Forex trading experts the “ForexSQ” FX trading team.
How To Start Trading In Stock Market
Maybe you’ve heard: The stock market has been on a bit of a tear.
The bull run hit its eight-year anniversary in early March, and while much of the coverage struck an end-is-near theme, investors remain optimistic.
Maybe you’re feeling the buzz, too. Or maybe the recent scramble by brokers to lower their commissions — E-Trade, TD Ameritrade, Charles Schwab and Fidelity all slashed trade prices in the past month — is tempting you, as they were hoping it would.
In either case, you need to lay a foundation before you become the next “Wolf of Wall Street.” Here are five steps to take before you start trading stocks.
1. Get your priorities straight
Your emergency fund isn’t being overly dramatic — it really is for emergencies. Anyone who bought shares of Chipotle before the E. coli scandal can tell you that money you invest in stocks doesn’t promise to be there when you need it.
On the other hand, stocks absolutely have a place in your portfolio for long-term goals like retirement. But that place should primarily be filled with index funds and exchange-traded funds, which are inherently diversified, at least among the market segment they track. It takes a lot of research, time and skill to build a diversified portfolio of individual stocks; it takes a few clicks to build that portfolio with index funds.
2. Build some knowledge
There are a lot of ways to pick stocks. Some people invest in their favorite toothpaste brand. Others go where CNBC points. Hardcore traders do in-depth stock research.
You don’t need to be hardcore, but there’s a lot to be said for researching where you put your money. That means digging into the bones of a company and its financial status, or looking to price history and past movements as a way to forecast the future. It involves time, complex lingo, understanding of various analysis tools and, in some cases, the calculator you used in 10th-grade algebra.
There are plenty of ways to learn how to do this. Most online brokers have deep educational resources, complete with videos and webinars. Some have offices where you can speak to an expert trader in person. There are also online forums, stock-trading websites and ForexSQ’s guide to how to buy stocks.
3. Pick a broker
As noted above, online brokers are fighting for your money at the moment, so it’s a good time to give it to them; costs have been driven way down.
But costs aren’t everything when choosing a broker. If you don’t plan to trade frequently — and you shouldn’t, as that kind of churn drags down returns — you want to focus on a broker’s other attributes: the above-mentioned educational resources, a user-friendly trading platform and tools, free research and good, accessible customer service.
Some brokers and trading platforms also offer paper or virtual trading, so you can place a few initial trades with Monopoly money rather than the real thing. While earning fake money isn’t so exciting, the minimal pain that comes with losing it makes this kind of practice worth it.
4. Take it slow
There are people who jump into a cold pool head first, and people who use the ladder, jump up and down, yell and wince with every cold inch.
That also pretty accurately describes two schools of investing thought: The first is to throw your money in at once; the second is to do something called dollar-cost averaging, which essentially means investing set amounts of money at regular intervals. Research shows that the earlier you get your money into the market the better, but when you’re just learning the ropes, it can pay — literally — to go with the latter approach.
To do that, decide on a budget and then use that money to buy shares of your chosen company — or companies — at a set interval. When prices are up, your money will buy fewer shares; when they’re down, it will buy more. That means you’re naturally buying more at a low and less at a high.
5. Make a plan for when things go south
You certainly don’t want to sell at every blip, or at any blip. But if the above is a plan for how to get into the market, you also need a plan for how and when to get out — rules for how long you’ll tolerate a dive like Sears stock experienced due to years of down sales, for example, before jumping ship.
Decide in advance how far your stock can fall before you want out, or what major changes to the company or industry would cause you to go back to that aforementioned analysis to re-evaluate. Then stick to that plan to avoid panic selling in other, less dire, scenarios.
How To Start Trading In Stock Market Conclusion
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