The Basics of Stock Market Trading
Trading stocks and investing in them are two totally different things. This article looks at some of the differences.
The Difference between Stock Investing and Stock Trading
Newcomers to the stock market may often confuse stock trading with stock investing, but it’s important to understand the difference before beginning to trade. When investors buy shares, they do so in order to gain dividends and capital gains. Stock Traders, on the other hand, are more focused on making short-term profits. In stock trading, the emphasis is more so focused on technical analysis, price movements rather than on the fundamentals of a company. Stock trading has its own set of techniques, some of which we will discuss in this article.
How to Trade Stocks
Learn How to Read Trading Charts:
The first thing to do before beginning to trade stocks is to learn how to read the three most popular trading charts: line, bar, and candlestick. You’ll find a slew of online sources that will teach you how to read and understand charts, and the better trading brokerages will usually offer educational material free of charge through which you can get an introductory understanding of charts and how to read them, identifying entry and exit points for a position, all about asks and bids, and more. Even if you’re completely new to stock trading, you’ll have no problem learning how to read and understand trading charts.
Open a Demo Account:
In stock trading, there’s no substitute for practice. Before choosing your trading brokerage, make sure that it offers a free demo account. This is an account in which you will be credited with virtual funds that allows you to learn how to use the platform and enables you to compare the different platforms offered by different brokers. But more importantly, it is a practice account for the learning stage of your career, and – afterwards – a testing ground for trading strategies before you implement them using actually funds.
Scale into Your Trading Positions:
Scaling into (and out of) a position is the act of incremental buying (or selling) – opening (born closing) several small positions instead of one large on using graduated entry/exit points. This is one more way to lower risk and take advantage of lower prices. An important thing to do before undertaking a series of such trades is to set yourself a maximum investment sum for the entire series.
Learn How to Swing Trade:
Many investors abandon traditional “buy and hold” stock investing in favour of day trading because the latter is usually short-term. However, this form of trading requires a full-time commitment and experience usually gained over a 2-year learning period.
An alternative is to begin with swing trading.
In “swing trading” a trade is typically held for a few days. Swing trading is an excellent and lower-pressure manner to learn the markets – get a feel for the currents and movements.
Only after you feel you have mastered the swing should you begin considering the day.
