There is no real best time to get started in trading stocks, but it is recommended that you familiarize yourself a bit beforehand. For beginners, there can appear to be a simply massive amount of information to absorb. The good news is that each new tip, trick, and the method you learn will come in due time. The key is not to take on more pressure than you can handle. Some things you will be able to learn from reading a few articles and other elements won’t become known until you do it yourself. Follow these 10 steps to getting started with trading in the stock market, so that you can pace yourself and invest when you’re ready.
Getting Started – Research, Research, Research
There isn’t a lot to be said about getting started with trading stocks and shares that doesn’t mention copious amounts of background research. You can read the newspaper religiously and sign up for alerts every stock market blogger known to mankind, but absolutely nothing trumps doing all of your research. And by research, you should be learning everything that you can about the industries, individual companies, and current financial climate before you invest even one dollar.
1. Figure Out How Much You’re Willing to Risk
Ideally, every novice stock trader should have a little money set aside to start, as well as a monthly budget for future trades. Regardless of how much you have to invest, you also have to take into account what amount you are willing to risk. Yes, there are excellent opportunities that can come out of trading stocks. However, from research, you will come to learn that each stock you buy is a share in a company. The value of that investment has no ceiling, but the floor is zero. When you are coming up with a budget for stock investments, don’t forget to calculate how much you are willing to risk.
2. Determine What Industries are Worth Investing In
Right now, any number of industries can be performing exceptionally well, or are predicted to be big moneymakers in the future. Within those industries, you can narrow down which companies have had the best performance each quarter, listen in on earnings calls, and take it from there. Specifically, you have to know how to buy stocks in Canada in order to be in compliance with financial laws. Wealthsimple guides beginner stock traders through the process of buying their first shares easy by outlining the entire process while highlighting the key points. They can also invest your money for you, with no high fees.
3. Learn How to Gauge Current Market Conditions
You can’t adeptly trade stock shares unless you can accurately gauge what the current market conditions are. Think of it as being able to stand in the middle of a field with your eyes closed; even without seeing the wind, you should be able to feel in which direction it is blowing. Market conditions can change, quite sharply, in fact. These changes can make the value of a stock you are holding go down, or reveal an opportunity for you to invest a highly lucrative stock. If you are paying attention to market conditions, none of these events will occur without warning. Remember that market conditions can hinge on literally anything. So, if the owner of a company accidently sends out a tweet, or even if a company starts to trend for creating a funny meme, your ability to gauge the market matters a lot.
4. Look at the Historical Data
Want to know how any particular company is going to do in the future? Well, you should be analyzing their past. Most of the time, companies follow patterns that mimic what is going on in the world. This means that experienced traders are able to anticipate the best times to buy and sell, and they get a lot of these clues from historical data. Look at the last year of company’s history, then see if you are able to guess how it will be valued in the next couple of months. Learning how to analyze historical values is the first step in picking up even more helpful methods, such as candlesticks and ratios.
5. Be Patient and Avoid Reacting to Market Changes
Things will happen in the stock market that are totally unexpected, and thus, fully out of your control. Sometimes, you will have to make snap-judgment decisions in order to protect the entirety of your portfolio. Many times, all you can do is be patient and ride the wave. If you have done your research and invested in companies with strong histories, then market changes aren’t going to cause your portfolio to be permanently devalued. Many novice stock traders end up reacting to the market, selling stocks that recovered not too long after they made their decisions. The terms “buyer’s regret” is familiar to the majority of people, but stockholders tend to learn what “seller’s remorse” means after being involved in the market for a short time.
6. Read the News and Interpret It
The single most powerful tool you have as a stock trader is going to be in the way you analyze current news stories. From discoveries and inventions to new CEOs taking the helm of the ship and earnings reports, the news is going to be firmly reflected in the stock market prices, as soon as the market opens that day. Check on the news, outside of what relates directly to the companies themselves. Your news sources should also include stories about the government, travel, and even entertainment. Start your day by reviewing all trending news stories and see how you can put that new information to work.
7. Watch Investment Grow in Value
The majority of stockholders with sizable and diverse portfolios didn’t wake up that way overnight. Strong stock portfolios are created over time. So, with that in mind, know that you have to be patient about seeing your investments grow. Some investments will grow faster and larger than predictions indicated, which can lead to a much healthier portfolio. As you continue to make small but frequent investments, you can capitalize on the movers and shakers and bide your time with the others. For reference, anything over a 10 percent increase in value for a stock is a very good percentage.
8. Add to Your Stock Portfolio Over Time
You might start off with only have 10 to 15 shares in a company, but after a year, with smart, well-paced investing, you might have 100 or more shares. Likewise, investment growth isn’t just about having the largest number of shares. Companies such as Berkshire Hathaway offer stocks with buy-in amounts in the several hundred-thousand-dollar mark. So, it’s not about having the highest number of shares, but the best quality shares. Even a fractional share of a high performing stock is going to be worth more than thousands of underperforming shares. Don’t be afraid to be hands-on, looking into stocks well before you are ready to buy. You might even see a stock you are interested in selling for way under your anticipated buy-in price.
9. Decide Which Stocks Are Performing Below Expectations
Every once in a while, you will need to go into your portfolio and perform a pruning of sorts. There will be winners, there will be losers, and then there will be those stocks that just aren’t performing at all. Getting rid of those stocks will free up more cash for you to invest with. Moreover, removing those demoralizing stocks will improve how your portfolio improves overall, as far as metrics go. If a stock has been underperforming and it doesn’t look like things are going to change, you should sell even if you take a loss.
10. Don’t Be Afraid to Take Temporary Losses
At times, the value of your entire stock portfolio will start to trend downward. That happens after negative news stories about the economy, after natural disasters, and even when major companies have scandals. It can take weeks, and sometimes, minutes, but the nature of the stock market is that it always rebounds. You will take losses, and they will largely be temporary. Either way, when you make a move, you learn from what happens in the end.
Know that being a novice stock trader doesn’t begin when you buy your first share. From the moment that you begin doing research and truly invest in the time it takes to learn the basics, you have officially begun your journey. Some people spend months learning the ropes of stocks and shares before they take even the smallest of risks. Others learn better by experience, even if that means they make mistakes and take losses. Try to find the middle point between the two, learning as you make small investments. This is the best plan for getting into the stock market, building a solid portfolio, and feeling confident enough to keep growing your investments.