Stock Market for Beginners - Basic Stock Trading StrategiesIf you are new to the stock market, my word of advice is to take care ! The stock market is not a level playing field, it is highly tilted in favor of the insiders. As a stock market newbie there are some basics that you need to understand before parting with your money.
As a beginner you can only hope to compete if you have a basic understanding of stock charts. Professional traders use them all the time so you need to understand what they are seeing when they look at them.
|Stock Market Charts Support and Resistance|
How to make money on the stock market using support and resistance levels ?
Stock prices will often move down to a certain point on the charts before turning round and moving back up again, if you knew when it was going to turn round then you could make some money by buying the stock at that point. This low price is known as the support level. The high point is called the resistance level. Stock prices often bounce around between this support level and the resistance level - if you can spot this trend in the stock charts then you can take advantage of the situation.
When a stock bounces around between the resistance level and the support level it is said to be in a trend. The aim is to buy it when it reaches the bottom of the trend and sell it at the top. This stock trading stragey does not bring in enormous profits in one go, the aim is to make around 7 - 10% profit over and over again. Once you have made a profit you sell the stock and look for another one that is following a similar trend.
It is very basic, but the aim of the stock market is to make money not to devise complicated strategies for trading stocks. The trick of course is to find a stock that is following a predictable trend.
You must also limit your losses. If the stock you buy starts heading down instead of up then at some point you need to get out. You do this by setting a 'stop loss' - i.e. a price at which you automatically sell. Your 'stop loss' should be around 3-4% below your buying price. This way you have the possibility of making a 10% profit but are only risking a 4% loss. The stock market is all about risk/reward ratios. If the risk is too great then you don't do the trade. Above all a stop loss is designed to make sure that you don't lose all your capital in one trade !
So to apply this basic stock trading strategy you need to look at the stock charts and find a stock that is following an upward trend and where you can make a minimum 7% profit. Then identify the support level and buy the stock when it falls back to at or near the support level. Don't buy all your stock in one go, buy half of what you intend to spend then watch the stock to see if it starts moving up. If it does start moving up then buy the other half.
If it starts to move down then sell up when you have lost around 4% of your money - in stock trading it is all right to lose battles as long as you don't lose the war.
For further reading on basic stock charting see - online stock investing
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