Summary: Are you ready to live the stock market? Do you want to spend your life bobbing and weaving amongst the financial giants, proving yourself in the most competitive business environment that there is? Are you willing to watch CNN and MSNBC compulsively, looking for a tiny advantage? Do you like to read the Wall Street Journal or Financial Times and think of it as "old" news?
If you do, then stock trading might just be for you! These stock trading tips will help you get started.
1. Get some help.
Is there a stock trading for beginners course or system that anyone can do?
The reality is that there are many different stock investing or trading services designed specifically for the beginner. Without being harsh, many of the top level services would probably be suitable as well - simply because a newsletter or trading service needs to do the vast majority of the work for members to be successful.
If an individual is looking for trading strategies or methods, there are many books available from Amazon that can teach this to a reasonable level. Then, that person would likely need to use some form of stock market research service that updates (at the absolute minimum) daily. With luck, this service would also offer some form of trading platform for both practice and real money.
However, for a person to subscribe to a monthly or quarterly service, it suggests that they are looking for more than a guide - they want it all done too - and hopefully the inclusion of an information and stock trading platform as mentioned above.
This means that most subscription services should be useable by a newcomer to the markets - though this probably is not advisable.
It is worth
remembering that many newer investors are not yet fully conversant with
the real meaning of risk as it relates to the stock market and their
personal financial situation. For these people, a longer learning curve
is almost certainly recommended.
Watch These Free Videos And Learn How To Trade The Stock Market
In such circumstances, the newer or beginner would be better advised to limit their choice of trading course. For example, some trading services advise on stocks, currencies and commodities. Cleary, this range of assets and markets adds to the risks for the unwary. In contrast, it might be better recommended that a system which focuses solely on stocks be selected.
Some services also advise on international markets. This should probably also be avoided. Just finding worthwhile opportunities on one market - the Dow Jones, NASDAQ or FTSE, for example - can be hard enough. Therefore, looking for a service which advises only on stocks and in only one market would be the best course of action.
Typically, these types of service will focus on finding valuable opportunities that much of the market has overlooked. Therefore, penny stocks are more likely to be the target than blue chip stocks in the DJIA. Smaller size growth stocks with a compelling story are the most likely focus (NASDAQ is a great place to look for these).
While the companies offering these services would be right to say that they offer more opportunities and greater value for money, a beginner should probably be more targetted in the market action they look for.
It should be noted that stock trading for beginners can already be a big step outside of the comfort zone for many people. So why make this more difficult than it needs to be?
2. Change your view of the world
There need to be several character shifts, mindset changes, for a person to be successful day trading or options trading.
Firstly, this needs to be an obsession. It will become all consuming. If you are not ready, willing or able to follow the NYSE ticker non-stop, or look at chart after chart seeking meaning, this might not be for you.
This all consuming nature means that you will probably need to start reading much more than you are used to. There is so much information about stocks published every day that it will be vital to find a way to only read the most relevant articles, but that will still be a lot of reading. You will almost certainly find that you start checking the websites of Bloomberg, Reuters and the Wall Street Journal multiple times every day.
Secondly, your view of companies will need to change. When trading in short time periods, what a company makes or does becomes something of an irrelevance. You might feel better knowing at least generically what sector a firm is in, but the real business of the business won't matter very much a lot of the time.
Thirdly, start thinking differently about money. Money is now the tool of your trade, a commodity like oil or gas. It is your job to send it to the most profitable location at any given time. Somehow it is vital that you do not think, "I could buy a new car with this much", but instead allocate it and make it work. In this regard, there are a number of books written for poker players about the mindset of gambling, money and what they call "bankroll" management that might be worth reading for some guidance.
Fourthly, your concept of time will need to change. There are many successful day traders that hold a position for seconds, or minutes at most. Most investors hold for months or years but your reference points will need to be much shorter than that. If this idea freaks you out a little, you might prefer to read this page.
Lastly, quit worrying about the state of the world. If you don't plan to hold a position overnight (something that many traders avoid doing) then who cares about the state of the world? Tomorrow you will start all over again.
Whether the economy is doing well or badly, there is a bull market or a bear market in place, it should all be largely irrelevant. Your focus is on making the next trade profitable, nothing else.
3. Start reading about hedge funds.
Hedge fund managers are the real entrepreneurs of high-finance. They leave their careers as prop traders for investment banks or mutual fund managers, raise finance, invest their own money and get stuck into the stock markets of the world.
Since they own their own company and invest heavily in their own fund, they have a very different approach to risk management than many large banks or mutual funds. Additionally, they trade various markets and asset classes both long and short, looking for opportunities. Good hedge fund managers are alpha machines and the concept of absolute returns is one that every trader ought to take on board. In other words, most beginner stock traders could do much worse than learn from this thinking.
We can highly recommend reading More Money Than God by Sebastian Mallaby and The Quants by Scott Patterson for some good general discussion of the hedge fund world.
4. Know thyself.
As mentioned above regarding poker, there are similarities to stock trading. If a position loses money, just as if you lose a hand with good cards, somehow you need to put it out of your mind and focus on the next position and doing as well as you can with just that sole focus.
This is easier said than done, of course. We all have our own little mental peculiarities to overcome. Somehow, in whatever way works for you, it will be important to move on mentally and find the next opportunity.
This mindset is a very long way from the one that most retail investors and financial planners have, so it might be best to not have these discussions with them. Trust us on this, when they find out that you are (essentially) betting their annual salary on a 5 minute stock trade in some obscure corner of the S&P500, they will be horrified. This means that you will need to keep your own counsel and deal with your own mental demons. Most day traders are not helping other people out, participating in mastermind calls or holding the hands of a beginner, they are battling in the cut and thrust of the a leading equity market. Additionally, if they tell you a secret strategy that they use, they have just created an extra competitor...
5. Trust no-one
Following that, it is worth highlighting that very few individuals will be willing to assist anyone else to get a start, they are not in the business of providing stock trading classes. As mentioned above, one more person doing the same thing means less opportunities to make a profit.
Within the big investment banks, hedge funds and C-suite board members, life is very competitive and Machiavellian. Hedge fund managers in particular seem to take real delight in being on the other side of a trade when a competitor is trapped (often when selling short), knowing that they (and often other hedge fund managers) are in the process of killing the fund. It is literally a zero sum game. If there are to be winners, there must also be losers.
There are so many examples of this kind of brutal competition for bragging rights and profits that it boggles the mind. Even famous movies about finance tell these stories (such as Wall Street, Other People's Money and A Good Year).
This does not necessarily apply to the individual day trader, but this is field on which you will be playing. Just merely being in the way of one of these financial goliath's could be enough to see a trader squashed. It is also worth pointing out that these Machiavellian financiers are the people that most others in finance and on the capital markets look up to as role models. Their behaviour, no matter how bad, will be copied.
Bonus Stock Trading Tip:
Pick a trading method and stick with it.
There are, of course, a great many ways to buy and sell in the market. For those readers planning to make the stock exchange into a form of personal income rather than a store of capital, then most trading tip sheets will include their favoured options trading and day trading strategies to help readers. Firms such as eTrade and AmeriTrade are more likely to be helpful as stockbrokers than some other firms.
It is also possible to spread bet financial markets and companies (here), use contracts for difference (CFDs), options, futures (here) and even derivatives (here). These are all high-risk options that really need to be thoroughly investigated and understood before you get started.
Each of these instruments has it's own peculiarities and lexicon. For most mere mortals, managing to understand the full risks and implications of just one method will be a real struggle, so it seems better to advise getting very good at one rather than moderately competent at several.
To read more about related topics, please follow these links:
Does The Stock Market Overreact?
Are You An Irrational Investor?
How To Find Great Stock Trading Courses
Why Use Stock Market Programs?
Should You Be Investing In Stock Market Assets?
Does Automated Stock Trading Software Work?