Stock Investing 101Ever wondered how stock investors make money and keep it growing? Ever dreamt of being able to do the same, retire early and enjoy your retirement years? Do you have a desire to invest in stocks but really don't know where to begin? If you answered "yes" to any of the above questions, you've come to the right place. Stock Investing 101 is your starting place. Investing means that you are putting your money to work for you. In fact - according to dictionary.com investing means to" put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value" Investing is not gambling! This is important to understand. When you gamble you bet on an uncertain outcome and in the process wish that lady luck smiles on you and you win some money. Real investors like you and me do not do that when investing in stocks! You perform analysis, you read, and you commit your money only when you are convinced that there is a reasonable chance for profit. As with everything else in life, this will come with risk, but at least you have conducted your due diligence. In fact - here is the approach that I use (really easy when you master it) to Stock Investing 101 that has definitely nothing to do with gambling.. READ PLAN FUND TRADE This approach has worked! Learn It! I attribute my successful trading to mastering this approach. Ready? Let's get started with Stock Investing 101. I will discuss each section. A word of caution - I will not be able to cover every angle to get you started investing. I promise however, to cover the most important information that should get you well on your way. The goal is to have a simple system that works and that any investor, no matter where they are in their investing life, can pick and run with. I hope you will. READ Start by reading. I cannot over emphasize this point! What should I ready, you ask? Glad you asked.. Books, articles and anything you can find on stock investing. Good place to start? The book "Stock Investing for Dummies by Paul Mladjenovic. I still reference this book many times. In addition, go to free online portals like investopedia and read up on stock investing. Read the Wall Street Journal (they have an online version). Get The Wall Street Journal for 75% off! Subscribe (for free) to Marketwatch and get daily news about companies. Read "The New Market Wizards: Conversations with America's Top Traders, a book by Jack D. Schwager. Finally, bookmark this site and come back frequently. Read the new articles I post, re-read information, re- familiarize yourself with the topics and information presented on this site. I bet some of you are asking - is reading that important? Well - there is a common adage that says "people perish because of lack of knowledge". If you do not have knowledge and information, how can you make educated decisions? Besides am a huge advocate of education, information, and knowledge and as such consider myself a life long learner with the goal of encouraging everyone to do the same.. so READ! PLAN I guess I am going to throw another vintage adage (maybe two) at you - “if you fail to plan, you plan to fail”. What do you need to plan for? In addition - "without vision people perish". What does this require? Plan your finances When deciding to invest in stocks, do not use money that you need for the next three years. If anything, use discretionary income that if you lost, you would still be able to pay your bills, and if you are married - do not have to sleep on the couch. Plan well, start small. Determine the kind of trader you are- Part of your planning is determining the type of trader or investor you are. The three main categories are - Once you determine the kind of trader / investor you are, you will use either of the following stock analysis to trade stocks: An understanding of both is important. To understand what type of investor you are, you need to think about your appetite for risk. In other words, how much money are you willing to lose? Another way to think about the type of investor you are, is to consider whether you are aggressive, prudent or speculative when it comes to trading. Aggressive traders accept greater risks. They want short-term gain, and usually fall into the swing trader or day trader category. Prudent Investors prefer less risk. They want long-term gain, and will usually fall into the long-term investor category. Speculative treat stock trading as a hobby! Determine your Trading strategy What is my trading Strategy? Every successful investor has a process. What’s yours? Each one of the categories mentioned above require a different strategy. Your trading strategy will include a determination of three things: - When to buy - What to buy - When to sell - When to sell You understand your entry and exit strategy, the frequency of your trades, and develop a systematic process to review each stock before you trade it. There are numerous technical indicators used by traders such as moving averages, stochastics, candlestick patterns, and fibonacci indicators. The idea is to find one or combine a couple of technical indicators when trading stocks. Investors must be sure however that they don’t use too many indicators at once as this can make trading too complex. Test different strategies before you use them. Because you do not want to test these strategies using your own money, consider opening a paper trading or virtual account that allows you to use paper money. Develop a trading plan You need a trading plan. Think of this as your business plan (unless you are treating this as a hobby, then you should not even worry about reading this). Your trading plan should answer the following question - What is my goal for trading stocks? Knowing this helps you set clear expectations. For example your goal could be to make a 10% monthly return on trading; or your gain target could be higher than that. Whatever your goal is, write it down. Remember a goal needs to be SMART – Specific, Measurable, Attainable, Relevant, and Timebound Over time, you may need to review and update your trading plan. For example, once you know what strategies work for you at different times (bull and bear, seasonal, monthly etc), you will need to incorporate them in your trading plan. Think of it as a “breathing, living” document Understand how to read Stock Reports and stock quotes
If you want to be a serious investor, you must ALWAYS do your homework before buying a stock. I dedicate a whole section to reading online Stock Reports, and understanding stock quotes. FUND To trade you will need to fund an account. Determine how much money you want to start with. Remember that stock investment is a risk, so do not use your school fees, rent money, or car note in the hopes of making money quickly. Do not use all your savings either. People lose money easily and quickly in the stock market. Decide whether you want to use an online broker or a regular phone broker. The phone broker is more expensive. Online brokers are great because you can fund your account anytime and trade anytime for a minimal fee. Examples of good brokerage firms are, Scottrade, E-Trade, TD Ameritrade, TradeKing etc. They charge commission fees between $7 and $20 per trade. Finally, open an account and transfer money to begin trading. I have seen people start with a little as $500. TRADE Trade and make $$!. Use the trading plan and strategy you have decided on. Or use free
stock screeners. Once you decide on the stock to trade, you will need to set up a Stock Order online, through your brokerage company. It is important to monitor the trade after that. I recommend you spend at least one to two hours daily reading, and reviewing your trades and any trades you intend to purchase. In addition, watch financial news programs like CNBC. Read and understand the news and ask – what does this mean for my trades? I hope this information has been helpful.
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