How to trade stocks like a Wall Street pro
Knowing how to trade stocks also means learning about the various factors that influence stock prices, including economic and market indicators, company financial data and stock market trends.
It also means underestimating the risks of learning to trade stocks and identifying the stock categories that best suit your unique needs.
Learn how to invest in stocks
It is worth it to learn how to invest in stocks before you trade. Study after study, stocks are among the fastest ways to accumulate wealth.
Since 1926, ordinary shares have returned an average of 10% per year to investors. Over the same period, government bonds have posted a yield of between 5% and 6%, according to Morningstar.
Therefore, the value of stocks grows faster and more steadily than bonds or money market bank accounts.
According to data from New York University, $ 100 invested in stocks, bonds, and money market funds in 1928, and left untouched, would have yielded the following amounts of portfolio cash at the end of 2017:
- Treasury bills: $ 2,015.63
- Treasury bills: $ 7,309.87
Key Steps in Learning to Trade Stocks
There are plenty of options for learning to trade stocks. For new equity traders, these options can be overwhelming, so it’s a good idea to empty the bridge and make sure you are financially prepared to trade in stocks, with no distractions.
This means wiping out any debt, checking your credit score and improving it if necessary, and having a good amount of money in your savings account to trade successfully. Learning to trade stocks also means knowing the amounts in your current investment and / or retirement portfolio.
Once these tasks are in order, focus on these moves to start trading stocks:
- Establish your goals. Your first step in learning to trade stocks is knowing where you are heading. It depends on several eligibility factors, including your age, income level, short-term financial needs (for example, saving for a marriage, a new baby, or a new home) and your long-term financial needs (saving for retirement, paying for a house, starting a business, or saving for college, are all good examples.) Once you’ve established and prioritized your goals and established a timeline for achieving them, you can begin the process of choosing investments in stocks that suit you best. meet your unique goals and needs.
- Establish your risk tolerance. Every stock market trader has a risk-based comfort level when investing in the stock market. Focus on the stocks that best fight the risk you are concerned about, whether it’s inflation, tax, liquidity, or all of the above. Mix the assets of your portfolio into different classes of stocks and try to hedge the different types of risks associated with investing. Overall, if you are losing around 10% of your stock portfolio and it causes you to lose sleep at night, be careful with your stock transactions.
- Establish a stable equity portfolio goal. For new stock traders, keeping it simple is a good strategy. Normally, a stock portfolio of 10 to 20 well-researched stocks makes a good starting portfolio. Having a short and more limited stock portfolio gives you the time to fully understand each stock, investigate the underlying financial data of the company, and assess the relevant risk factors. It also gives you the time to investigate the different types of share classes, such as large cap, mid cap, small cap and international stocks, and learn about the different sector categories of stocks specific to the company. industry, such as manufacturing, technology, financial stocks and consumer goods.
- Establish a knowledge base for successful stock trading. Wait until you do your first stock trade until you have mastered some of the basics of stock trading. Make these items on your stock market educational checklist a top priority:
- Know your metrics. Recognizing the terms professional stock traders use when valuing stocks is a “must” for stock traders. Stock trading terms such as price / earnings ratio (P / E ratio), compound annual growth rate (CAGR), return on equity (ROE) can reveal the inner workings of a stock and you can steer towards a “buy” or “decision to sell”. Check out this list of key stock market definition terms and keep it handy when you’re stock trading.
- Know your stock market orders. Trade executions depend on the type of stock trades you are performing. Market orders are the most common form of stock trading, but investors should be familiar with other classifications of stock transactions, such as stop limit orders and trailing stop orders, which are treated differently depending on the execution. transactions. The United States Securities and Exchange Commission has a helpful tutorial on types of stock market orders.
- Know your type of investment account. Stock market investors usually opt for a traditional treasury account when trading stocks. But other options are available, including margin accounts (which allow you to borrow money to buy stocks, with increased risk.)
- Know where to buy stocks. You can buy stocks in a number of ways, including through a brokerage or online. Typically, you will pay more trade execution fees when buying stocks through a traditional stock broker. With the vast improvements in digital stock trading, you can easily buy stocks through online trading platforms like Scottrade for $ 7 per trade, or through Charles Schwab at around $ 5 per trade.
Strategies for trading smart stocks
Perhaps the best way to strategize for your stock market experience is to think of it physically, as a steel vessel of sane, proven, and comprehensive stocks that you will use as armor for wisely investing in the stock market.
In doing so, look for companies with strong financial performance and managed by seasoned and savvy executives. Also look for companies with a history of above-average earnings growth, like Proctor & Gamble, American Express, and Coca-Cola.
Also keep these factors in mind when learning to trade stocks:
Keep your stock trading simple. In the beginning, steer clear of younger, tech-focused stocks as they are far too young, risky, and difficult to value. Instead, take a measured 10-year valuation perspective when choosing stocks, looking at their performance over the past 10 years and their potential performance over 10 years into the future.
Guarantee a return on equity. Companies that can’t wait 10 years to be accurately valued shouldn’t be in your startup portfolio. Companies that require a lot of capital shouldn’t either. On the contrary, focus on companies with low capital requirements which tend to generate significantly higher returns.
Have money on the barrel. Look for companies that have deep pockets and plenty of cash. Usually, these companies have plenty of financial resources to pay their bills, keep growing, and keep making money for shareholders like you.
Maintain low debt. Low debt leaves a business with significant room for growth and allows profits to grow based on equity rather than having to borrow money.
Focus on value. Target investments in undervalued companies with good long-term growth potential. Identifying such companies is not easy, but he mastered the methodology by favoring stocks with unjustified intrinsic value, according to an analysis of a company’s fundamentals. He is looking for good income producers who, although undervalued, are well managed.
Have long term potential. Try to select stocks only on the basis of their overall potential as a business. Once you add such a stock to your portfolio, hold onto it for years, if not decades, as long as the stock price continues to rise and the underlying business fundamentals remain strong. Also, don’t worry if other investors recognize the value of stocks, but if the stock makes money in the long run.
Stick to your plan
When learning to trade stocks, stay sane and don’t look for returns on your investment, especially those deemed “hot” by street tipsters. Talk to your financial advisor, craft a plan that’s right for you, and stick to it no matter what.
Also, keep in mind that stocks are volatile and things like that happen. Don’t react emotionally to market crises – always keep a cool head and stick to your long-term plan.
Yes, it’s hard to stay calm in a volatile market, but patience really is a virtue on Wall Street. Exhale and remember that stocks have historically rewarded long-term investors – and this is exactly the kind of stock trader you want to be.