Today, you can trade stocks online with ease. There are numerous websites that will allow you to trade your stocks online. You will typically pay a fee for said trades, but it is often nominal, and worth the money. Trading stocks online is advantageous in several ways. The fees are less than a broker, stock trades happen immediately, and you can trade as many or as few stocks as desired. Additionally, the online trader has full control of their own stock trades. Online stock trading is a winning option.
Trading stocks for a living is an attractive career path for many. The ability to profit while staying at home, working behind the computer, and not having to answer to any irritating employer is an absolute dream come true. However, most people fail to recognize or merely choose to neglect the dangers present when trading stocks or any financial instrument for that matter.
All too often, people get so excited to pull the trigger that they fail to plan adequately. And while even a careless approach to trading can yield short-term profits, you’ll find that over time the odds ultimately collapse against you and you pay a hefty premium for making such mistakes.
Traders aspiring to become successful in systematically and consistently extracting profit from the stock market require a solid base from which they can build trade ideas and distill information starting from a macroscopic viewpoint all the way down to a microscopic level.
Choosing a Broker
A stockbroker is required to trade stocks online. In fact, if you don’t have a stockbroker yet, you may as well skip the entire guide since you won’t be able to take any positions and use any of the advice here until you’ve opened up a broker account. Novice traders opening their first account should look for a platform they are comfortable using. The software should be streamlined, easy to use, and complemented by an active online community who can address questions regarding the platform or any other trade-related topic.
Aside from trading platforms, consider a stockbroker’s financial situation. Are they financially stable enough to weather economic catastrophes? It’s not uncommon for stockbrokers to turn belly up without a moment’s notice because of some unforeseen financial event that leaves millions of dollars’ worth of loss in the aftermath. If this happens to your broker, you might not be able to recover your account balance.
Establish a Plan of Attack
Don’t just pull the trigger once you have an active broker account. Devise a plan that protects your capital first and shows you profitable opportunities second. When you trade stocks online, keeping a defensive approach tends to be more promising than being aggressive with your positions.
A good plan should incorporate your investment goals, time frames you are going to trade, types of stock and sectors you will be focusing on, risk to reward ratios, and entry and exit points. For a novice trader, this myriad of factors can be a mouthful to process. Take as much time as you need, whether it be an entire day or a full week, to formulate a plan that’s customized specifically to fit your needs and objectives.
How quick do you want to grow your capital? An investor who wishes to double his/her investment capital within the year will be forced to take on more risk as opposed to an investor who has more modest ROI goals, such as 25 percent for the entire year. The time frame also plays a noteworthy role when it comes to trading stocks and other financial instruments. Day trading, for example, exposes your capital to short-term volatility and has slightly different tax implications compared to long-term trading, which often lasts for several months.
Learn the Strategies
There are a number of strategies you can employ, majority of which are categorized into technical and fundamental analysis. Other traders use naked charts that are free of any indicators or fundamental drivers. They rely simply on how price is moving and reacting to key levels.
From a fundamental standpoint, day trading stocks online will require you to regularly conduct research on company filings, reports, and press releases in order to find and capitalize on tradable opportunities. Fundamental analysis is based on microeconomic factors including health of companies and market sectors. A bad earnings report could send a stock’s price dropping indefinitely while mergers and acquisitions of well-known brands can spark an increase in stock price.
Technical analysis, on the other hand, makes use of indicators derived from historical price data. From this accumulated data, indicators that use waves, lines, and extensions have been generated and prepackaged into trading platforms. It can take time to learn every indicator and how they can complement your trading style. Basic indicators to start with include moving averages, Relative Strength Index, and Stochastics. As you progress your learning of these indicators, you’ll also be able to adjust default parameters to better fit your investment objectives.
You’ll also have to identify where you’re at in terms of risk. Are you a risk taker or do you avoid it like the plague? Being risk averse means actionable trades will be limited since you will have more parameters that will filter possible trade setups. To gauge where you stand from a risk standpoint, ask yourself how you would handle a 10 percent loss in one day. Will you still be calm after the loss? Or are you going to be angry or stressed out?
Portfolio for Novices
If you are a novice, contemplate on investing majority of your capital into index funds, which are renowned for their safety. Start with simple index funds like the one tracking the S&P 500 and some index funds that track international companies. Furthermore, try to invest in an index fund that tracks smaller markets like the Russell 2000. This diversification will ensure that your risk is spread out while also providing a decent ROI over time.
Trading stocks online will present risk regardless of your skill level, stock sector, or trading approach. It is up to you to manage this risk by training your frame of mind. Work on being able to accept losses before they turn into huge ones that could potentially endanger your capital.
Always keep in mind that no single trade should affect your investment portfolio. If you can approach day trading or any style of trading with a calm and disciplined mindset and solid technical bearings, you are much closer to your goals of becoming a profitable and successful trader.