If you’re thinking of ways to diversify your streams of income, putting up a trading portfolio has probably crossed your mind. This usually happens after being introduced by a friend or a relative who is also into stocks and investing. One of the main reasons why most people get easily discouraged (before they could even set up their portfolio) is because of the daunting learning process and the risk of losing their savings.
However, the stock market isn’t as simple as going to a speciality store – buying items you think are good for their price, and selling them once you think it’s a good deal to do. So, it’s important to gear yourself with the proper knowledge in trading and prepare yourself on what to expect, then you just might be able to successfully earn more than your 9-5 job.
Getting to Know the Whole Stock Market Language
Learning how the stock market works can be intimidating for beginners. The whole jargon can send rookies running for the hills. With that, here are some of the basic terminologies you should know to get you started:
- These represent the pieces of equity and shares of a company.
- Units of stock
- Stock Market. Any exchange where an individual can buy or sell stocks or where companies put stocks publicly.
- Blue Chip Stocks. Derived from blue gambling chips, blue-chip stocks are usually reputable companies that offer a more stable and financially secure investment.
- Bear Market and Bull Market. In trading, the bear market is a jargon that describes the downward trend or plummeting of stock prices. In contrast, the term bull market is used when stock prices soar high.
- This is a firm or a person that does the buying and selling of investments for you with commissions.
- Day Trading. This is a buy-and-sell practice before the market closes for the day. This can also be called active trading.
- Bid, Ask and Spread Price. The bid price refers to the price of a share a trader is willing to buy. The asking price means the price the seller requires per share, while spread refers to the difference between the two prices.
- A fraction of a company’s profit paid to investors. Note that not all companies pay dividends. If you trade penny stocks, dividends are not what you are after.
- This simply refers to the extremely small difference between the bid and ask prices of a stock.
- Act of borrowing shares from your broker to increase your profit.
- Pink Sheet Stocks. These are penny stocks of smaller companies traded at $5 per share or less.
- This measures the return of investment received from the disbursement of a dividend.
Now that you’ve learned the basics, it’s time to know the tips and strategies you should know if you want to be a trader.
How to Successfully Earn Profit from Trading Stocks
Buying stocks isn’t as complicated as how you imagine it to be. There are certain things to always keep in mind to get a fruitful outcome.
1. Decide What Kind of Trader You Want To Be
As with every decision making process, you have to identify your plans and goals if you want to start trading. Traders vary depending on performing trades daily, weekly, or even years—which is often referred to as investing. There is no absolute way to trade as risks and rewards go hand in hand with these different approaches. So, to find out what kind of trading style you will be doing, it will largely depend on the amount of time you can give and as well as your priorities.
As mentioned, day traders buy and sell stocks within the day, which may be a riskier approach if you are not a keen trend watcher. On the other hand, swing trading lasts from several days to weeks. This can give quick rewards with less risk compared to day trading, but can be a strenuous method.
Investing is another option that holds stocks for months to years. Some traders recognize investing as different from trading since the latter deals with shorter periods.
2. A Good Broker Will Give You the Advantage.
At your disposal, the internet has plenty of brokers you could choose from, but don’t just join the bandwagon without doing your research. Traders should go for brokers who can actively teach trading tools and trends to keep them up-to-date. From an honest BDSwiss review for traders, the highest priority for traders is software solutions that are suitable for all trading styles. Another common aspect active traders look for in brokers are those that offer the lowest commissions while delivering fast orders for time-sensitive trades.
3. Buy Low, Sell High.
You must have heard this countless times if you’re not new to the business and finance world. However simple and overrated it may sound, “buying low, selling high” is crucial and challenging to consistently adapt because you simply don’t know if the moment is the right time to invest. To objectively make a judgment, traders use moving averages, business cycles, and consumer sentiment to help them make an informed decision.
4. Watch Out for Those Taxes.
One great disadvantage of trading is incurring taxes from selling stocks you’ve only had for less than a year. This is because short-term profit is taxed as a regular income. To compensate, it is important to always monitor the trend movement to identify purchases or sales. If the trend shows a negative direction, this means there are only little buying opportunities you can make out of it.
Another strategy you can do is exhausted selling, which is typically done after periods of panic selling brought by a foreseeable recession or other external factors.
5. The Right Kind of Mindset.
One common thing traders tell beginners is that trading is a battle of emotions. From the wise words you can learn from long-time traders, never defy market trends and/or mix up trading with investing. In every market move, there is always an opportunity but do not forget your priority. Bad traders would often forget that they are trading to generate profit and, instead, try to prove they are right despite their losses.
The stock market is a volatile arena and it’s important to recognize and always educate yourself on the current trends – whether you’re an active trader or a beginner. With the guides you have learned, trading is simple but challenging. Remember that discipline, immersing yourself in the latest news, and consistently learning the technical know-how are some of the things that make a good trader. Lastly, do not be afraid of losses but allow the experience to mold and guide you on your next trade.