Investing in Stocks for Dummies - Buy Low Sell HighHow to trade stocks when you are a total beginner to the stock market?
Well, first things first, you need a trading account with an online stockbroker. They are all pretty much the same so go for one that provides news, charts and trading, no advice. Personally I can not recommend TDWaterhouse or anything associated with them or starting with TD, but apart from that any one of the online brokers will do the job.
Next you need to pick some stocks, which is where it gets tricky. As a beginner you need to keep it simple and not risk too much money. You need to decide if you are an investor or a trader. Investors invest for the long-term (years) - stock traders trade for the short-term (hours,days,weeks or sometimes months).
For short-term trading you need to understand something about stock charts. You need to buy when a stock hits a bottom and sell after it has moved up (usually you are looking for a gain of between 5 and 10%). With small gains like that, you can see that you need to make trades fairly frequently.
So how do you know when a stock has hit a bottom ? You need to follow the stock charts, find a stock that has been trading in a channel (i.e. bouncing around between a support level and a resistance level - see - support and resistance) and buy when it hits its support level and sell when it hits its resistance level.
This is a very simple stock trading strategy to follow, but some traders do very well out of the stock market using only this. There is a danger when trying to trade stocks that you end up overcomplicating things. But basically the stock maket is not difficult to understand, you buy some stock, wait for it to go up then sell it back to your stockbroker. For slightly less basic charts, check out candlestick charts
Another basic element to understand is that you can't get it right all the time. You will inevitably make losses, but you need to make sure that your gains are more frequent (or more significant) than your losses.
If a stock drops more than 5% after you have bought it, then sell it and move on. You can do this automatically by setting what is known as a stop-loss . That way if the stock drops then it is automatically sold out of your account. You have lost the battle but not the war.
The video below gives a good explanation of what support and resistance levels are and how to spot them - if you are impatient you can fast forward through the first 45 seconds
Further reading : Investing in stocks for beginners
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