1. Stocks

9 Simple Steps To Make Money In The Stock Market

Do you want to know how to make money in the stock market? You need to learn how to trade stocks. This simple steps here will help you if you don’t know how to get started. I have made them simple to understand and follow. All you need now is to read through these steps and take note of the actions you need to follow.

Smart investors know that stocks are one of the investment opportunities for building wealth. But you need to know for yourself how profitable is stock trading, because a lot depends on your trading approach.

If you are desiring to venture into stock trading business, you may need to educate yourself more on the basics of stock trading. And you will find this simple guide very useful to understanding your first steps in the stock market.

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Understanding The Stock Market

A stock market is a designated place where stocks or shares of a company are bought and sold. This transaction is processed between stockbrokers and shareholders. A good example of stock market are the New York Stock Exchange and the Nigerian Stock Exchange.

And every country in the world has a stock exchange. You should get more information about your country stock exchange to familiarize yourself with how stock works in your country.

Also, there are several online stock trading platforms that can help you buy and sell stocks. A little research online would lead you to the best stock trading platforms for your country stock market.

Stock trading is considered a risk venture. Although the potential for profit is high, depending on economic indexes in your country. A good profit margin for stocks by general rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered high, while a 5% margin is low.

Step #1: Understand Stock Terminology

These are unique technical keywords that will help you read the stock market. You need to know and familiarize yourself with these terms. It’s like the school of stock market. If you don’t understand the language how would you understand the business.

As a beginner, your should start with the basics. Learn those common terminologies that will get you started in the business.

Timothy Sykes listed 37 of them in his blog that I would like you to check out. When you understand these stock terminology you are better equipped to start trading stocks.

Here are a few of the tips:

  1. Annual Report
  2. Arbitrage
  3. Averaging Down
  4. Bear Market
  5. Beta
  6. Blue Chip Stocks
  7. Bourse
  8. Bull Market
  9. Broker
  10. Bid
  11. Close

Know the keywords and what they mean in stock trading business. That’s your first step in stock market schooling. These are also the words you are going to be encountering as you invest in the stock market.

Step #2: How The Stock Market Works

It’s vital that you understand how and why companies get listed on the stock market. Companies stocks are first made available on the stock exchange through their initial public offering (IPO). After the initial public offering, the company’s stock is then freely traded on the exchange.

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It’s not enough to just know how companies get listed in the stock market. You also need to know why. The why is more important than the how. Because it’s what forms the purpose of the IPO.

Companies decide to go public for one main reason, which is to raise a lot money. But most importantly, it’s to spread the risk of ownership among a large group of shareholders. So, when you buy a company stock, you are not only a part owner of the company, you are also sharing in their risks.

And that also makes you share in their profits, which is the primary reason shareholders decides to trade company stocks. Your ownership of some company stocks gives you rights to share in their profit based on the percentage of the stocks you own.

Step #3: The Tools You Need To Trade Stocks

Traders often turn to research to help them make buying and selling decisions. You need the best charting tools to help you trade stocks and the best tools to help you place stock orders.

Charting is a way to look at trends in a stock’s price over periods of time. It gives you an overview of the stocks, current statistics and possible forecast of future earnings.

Top Free Stock Chart Tools:

  • TC2000: The Best Free Charts for Detailed Technical Analysis & Scanning.
  • StockCharts.com: Is Good for Advanced Charts & Analysis From Industry Experts.
  • TradingView: The Best Free Stock Charts & Huge Trading Community
  • Stock Rover: The Best Free Screener & Charting for Value Investors
  • MSN Money Central
  • Robinhood: A Simple Free Trading from a Smartphone
  • Yahoo Finance: A Good Charts & Delayed News + Broker Integration
  • CNN Money: The Basic Stock Charts & Watchlist with No Login
  • Reuters: Is Good for Free Stock Market News + Basic Stock Charts
  • Finviz: A Good Stock Market Visualizations & Charts

Step #4: How To Find The Best Stocks

The most important aspect of stock trading is knowing how to pick the best stocks. There are thousands of stocks made available on a daily basis. You need to be able to filter through thousands of stocks to pick out the ones that will be profitable for you.

Sometimes, your best stocks may not be best for another person. Always consider your strategy when picking stocks to buy. However, you can simply follow this simple advice below.

The Trading Academy gave us a simple stock picking guide on their blog that anyone can follow to pick best stocks to trade.

Tips to Pick Stocks:

  • Understand your level of risk and decide what is appropriate.
  • No Matter your personality, develop a smart strategy for choosing stocks to invest in.
  • Start by picking one stock and then analyze the results.
  • Use trading charts to understand movement of stocks and the overall market.
  • Finally, stick with your plan!

Step #5: Learn How To Read Stock Charts

Reading chart is an integral part of stock trading. You need the right information on stock trends to trade. Knowing how to read stock charts is the only way you can be on top of the stock trends.

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Candlestick Charts are very popular because they provide traders with all the right data at the right time.

How to read a stock chart:

  • Understand the trend line. Thats the blue line you see on the stock chart that’s either going up or down right.
  • Look for lines of support and resistance.
  • Know when dividends and stock splits occur.
  • Understand historic trading volumes.

Step #6: How To Draw Trend Lines

You need to identify trends in stocks. It gives you an idea of which way the stock prices is heading. This trend lines are straight lines that connects two or more price points. They act as a line of support or resistance, and extends into the future stock prospect.

Technically, it’s on the assumption that prices trend. So, trend lines usage is important in stock trading, for both identification and confirmation of stock trend.

Tips To Draw Trend Lines:

  • Trend lines are drawn at an angle.
  • They are used to determine a trend and help make trading decisions.
  • In an uptrend, you draw trend lines below the price
  • But in a downtrend, your trend lines should be drawn above the price.
  • If you draw a trend line in an uptrend, two lows must be connected by a straight line.
  • But to draw a trend line in a downtrend line, two highs must be connected by a straight line.
  • Also, a trend line should be connected by at least three highs or lows to make it valid.
  • However, the more times the price touches the trend line, the more valid it is.

Step #7: How To Manage Stock Trading Risk

Stock trading has financial risk. You could lose your investment in one single trade if you are not following best investment advise. You also should discourse with your investment adviser, to help you assess your level of risk exposure before investing.

Also, you need to study risk management techniques to greatly improve your chances of success. When to trade, how to trade and when to take profits or cut loses are all part of risk management in stock investment.

Tips To Manage Stock Risk:

  • Planning Your Trades.
  • Consider the 1 Percent Rule.
  • Stop Loss and Take Profit.
  • Set Stop Loss Points
  • Calculating Expected Return.
  • Diversify and Hedge.
  • Downside Put Options.
  • The Bottom Line.

Step #8: When To Enter & Exit Trades

Trading stocks involves buying and selling. That’s why there is entry point and also exit trade. It works best when you set profit target for stocks that you buy. You can determine when the price is okay to buy and at what marginal price Increase you should exit to cash in on some profit or cut your loses.

To be profitable in stock trading, you need to be able to know when to enter and exit a trade, even if you are wining or losing. An exit trade can be to take in profit or cut your loses.

Top Rules For Entry And Exit Trades:

  • Respect The Market.
  • Have Patience
  • Set a Target Price.
  • Use The Stop Loss Tool.
  • Don’t Play When Markets Don’t Trend.
  • Determine Entry And Target Prices.
  • When The Market Stalls, Don’t Play.
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Step #9: Follow A Trading Strategy

The last step on how to trade stock is following a trade strategy. You should have a strategy when you trade stock. This will greatly improve your chances of success. Don’t just buy and sell without following any particular stock trading strategy.

Note that stock prices are volatile. They fluctuate based on news information that impacts on the stock market or a particular company stock. These kind of unpredictable fluctuations are what causes market surges and declines as well.

Stock trading strategies are there to help you follow a pattern that gives you an advantage over those market fluctuations. By helping you take necessary actions when necessary, to either cash in on profits or cut your loses.

4 Common Stock Trading Strategies:

  1. Day Trading
  2. Position Trading
  3. Swing Trading
  4. Scalping

{1} Day Trading:

This kind of trading strategy involves the buying and selling of stocks within the same day. You trade to take advantage of the small daily price movements.

{2} Position Trading:

This one involves keeping a position open for a long period of time. Position trading can either be speculating on price or investing. You are concerned with short term stock market fluctuations. You can hold a trade position for some weeks, or months or even years.

{3} Swing Trading:

This trade strategy anticipates price moves, which can last a couple of days or several months before taking trades Profit. There are also risk involved in swing trading, which happens over the nights and on weekends.

{4} Scalping:

This requires a trader to have strict exit strategy. After a trade is executed and shows profitability, this trading position is designed to profit off small price changes.

Conclusion

Stock trading is like every other investment opportunity. It has its fair share of profits and loses. It’s a volatile investment, with stock prices likely to fail for a protracted period. Yet, stock investment provides the highest potential returns over the long term. Apart from dividend yield, stock value can appreciate as well.

And regardless of the economic ups and downs, the stock market has proven to be the best place to invest disposable cash, including saving for the future.

But if you are going into stock investment for the first time, you need to get financial education on stock investment. Learn how to build your stock portfolio. And if you are a high risk player, understand how to day trade with success.

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