The Basics of Trading on the Stock Market


Starting off at the Stock Market

Here, you will be told to always buy low and sell high. You will read countless articles and hear even more rumours about stocks that are just on the edge of taking off. The world of stocks comes with a lot of misguided opinions, so before you decide to trade in stocks, you first need to learn how to filter out the noise.

First, really make sure you understand what a stock is and how the market works. Your money will be on the line the entire time, so you might as well know your chances of getting it back. Most new traders simply want to know how and where to get started. Here are the basics of the stock market to help you through your first investment.


  1. Lay your Foundation

There are a number of short terms used by traders that you will need to understand if you hope to profit from stocks. A stock is a security that shows part ownership in a publicly traded company, but that is not all you need to know. You have to understand what the stock market is, how it works, why it is so hard to predict, what makes stock prices go up and down…and so forth. There are terms like averaging down, the beta of a stock, bull market, blue chip stocks, dividend, day trading, broker, index, hedge, IPO (initial public offer), margin account, moving average, portfolio, stock symbol, market volatility, and the list goes on.

This will give you basic knowledge you need so you won’t have to look up every word you come across. After this, make sure to find a good brokerage company. There are numerous companies, like CMC Markets, based online and in the physical world. Look into them, and then choose wisely.


  1. When to Buy and Sell

These are the two most important decisions you will ever make as a trader. The best time to buy into a stock is when other traders are pessimistic about it. The best time to sell is when they are optimistic. This, however, is not all. You are more likely to get a high return when you buy a stock after its price going down rather than buying it after the price has risen. Before you do this, look into that stock. Take it apart, ask why the price dropped, look at other stocks in the same industry, how severe was the fall, and did the entire market fall? Find a buy/sell principle and stick to it. Most times, the issues behind a falling price are usually more complex than they appear.


  1. Know the 10% Rule

Allocate 10 percent, or less, of your portfolio to personal trading. The remaining 90 percent can be invested in low index funds. Make sure that you can live comfortably without the money you have traded. Don’t go investing your next month’s rent, or your children’s college education fund. You can never really be sure with the stock market, sometimes you win, sometimes you lose, and most times, the risk is usually not worth it. From your very first investment, train yourself to always resist the temptation of always trying to win.


  1. The ‘Hot Tips’

Do your own research. Do not depend on hot stock tips from the internet. No one knows what the market is going to look like tomorrow, and they, certainly, have no idea what it is going to look like a week or a year from now. Suggestions from analysts are helpful, but do not entirely depend on them. Insider information with make you go broke in a second. Brokers may be smarter than you as far as the market goes, but the odds are always against you. Always be skeptical about stock tips.


  1. Ditch Emotion

This is a mind game. If you see a price action and your intuition tells you one thing, it may turn out to be the complete opposite. Don’t think about making more money, think about protecting the money you already have. 90% of trading is mental, only 10% is skill. Learn to trade unemotionally. You have brainpower, now develop the stomach for trading stocks.


  1. Thanks for sharing such a great post. It is must read for everyone.

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