Trading stocks is scary for ordinary people because the average investor knows little or nothing about the stock market. Ignorance of the market is no excuse in today’s world because there are many websites; such as alpari, that provide instruction in stock trading for novices. One advantage to these sites is that they provide fast access to easy-to-use trading systems.
It is easy to overcome the fears and start trading stocks today; however. If you will study and research stocks.
Today is a great time to trade stocks because an average person can learn a lot about the stock market fast. An internet connection will give you access to far more information about stocks than Warren Buffett had when he began trading.
How to Research Stocks
The first step in stock trading is to sit down and start researching stocks. You can begin your research by Googling companies you are interested in.
You need to understand market fundamentals and the primary systems of stock trading before entering the market. You will need to know the difference between value investing and technical analysis for example.
Googling those terms and reading books such as Benjamin Graham’s Intelligent Investor will give you a basic knowledge of those systems. It is advisable to read as much about stocks and investing as you can before you begin.
Another good way to get familiar with stocks is to go to financial websites and read company earning reports. Reading through the earnings information provided at many websites is the best way to learn how companies make and lose money.
How To Study Stocks
Financial numbers to examine at those websites include; revenue, net income, gross profit, operating income, free cash flow, the revenue growth rate, operating cash flow, and cash and short-term investments. Studying those numbers can show you if a company is making money.
The best way to learn how to read corporate finances is to study corporate financial numbers. Likewise, the best way to learn about stock prices is to study stock information including daily trading numbers and stock index performance.
The advantage to studying stock information is that you can become familiar with the equities market and lose your fear of it. All successful traders have one thing in common – they are not afraid of the market.
Learn your Tolerance for Risk
Many people fail at stock trading because they do not how much risk they can tolerate. Successful traders; however, are not afraid of the market because they know how much risk they can tolerate.
Understanding your tolerance for risk is the first step in picking the trading style right for you. Those with a high tolerance for risk; for instance, will enjoy the thrill of day trading and shorting stocks. People with low-risk tolerance; however, will be more comfortable with value investing and buy and hold.
The fastest and best way to learn your risk tolerance level is to trade a few stocks. Make a few small trades and see how you react psychologically.
If you cannot sleep because you worry about your trades, you have a low-risk tolerance level. If you can function normally without thinking about your trades, you have a high level of risk tolerance.
Once you learn your risk tolerance level, you can start trading stocks regularly. Knowing your level of risk tolerance can show you which stocks you will feel comfortable only. A good rule of thumb is never to buy or hold any stock you feel uncomfortable with.
Trading is Education
The best education about stocks is regular trading. Making a trade every day or once a week can familiarize you with the market.
Researching stocks every day or searching for new stocks will add to your education. It is best to identify and research one new stock at least once a week.
Try to research stocks in sectors you are unfamiliar with and study similar companies. The more time you spend studying stocks and trading systems the more you will learn.
Besides new stocks, keep researching the stocks you own. Try to read at least one news article about each stock you hold each month. Go back and read through those companies’ financial numbers regularly.
Try to understand the market the companies operate in and identify their competitors. Research technologies, politics, regulations, marketing strategies, and markets for the companies’ products.
Invest in What You Love
A great way to motivate yourself to study stocks is to buy shares in companies that make products you love.
If you are a movie fan buy shares in Disney (NYSE: DIS), Viacom (NYSE: VIAB), or Netflix (NASDAQ: NFLX). Technology geeks could buy Apple (NASDAQ: AAPL) or Google (NASDAQ: GOOGL). A super shopper could buy Amazon (NASDAQ: AMZN).
The big advantage to this method is that you will already know the subject and understand the products. Studying things you love is always easier and more fun. Another advantage to investing in what you love is that you will enjoy researching those stocks.
A good way to find new stocks is to record the names of new companies or services you see and research them. If a new store opens in your neighborhood, or you enjoy a new product research the brand. Similarly, you can research all the brands you use every day and learn who makes them. Then you can buy stock in those companies.
Remember, knowledge is the key to the stock market. The more you know about stocks and the market, the easier it will be to trade stocks.