How to Trade Stocks Online - the Basics

How to Trade Stocks Online for Beginners

Oo they have the Internet on computers now!

If you are new to trading stocks you may feel that there is a lot of stuff to know. But trading stocks can be as simple or as complicated as you wish to make it. Here are the basics.

  1. Open an account with an online stock broker. If you are just an average sort of guy then you need a cheap discount broker. Here is a list with further details - best online brokers - the only broker I never recommend is TDWaterhouse, but apart from that they are all much the same.
  2. If you are going to be a short-term trader (days or weeks) then you need to buy low and sell high. Easy to say, you might say, but how do you know what is low? Answer : you need to understand the basics of stock charts.
  3. Support and resistance. Study the basics of stock charting (professional traders use charts to decide entry and exit points and you need to do the same or you will be at a disadvantage) and look for stocks that are in a trend.

    Support and Resistance
    Being in a trend means that the stock price goes from a low point to a high point and back to a low point. The idea is of course to buy at the low point and sell at the high point.
  4. Understand moving averages. Finance sites such as Yahoo finance will show you stock charts and will also draw the moving averages.
  5. Never buy a stock if its price is below its 200 day moving average.
  6. Never a buy a stock for a short-term trade if the 5 day moving average is pointing down.
  7. In swing trading you are looking to make a profit of around 7 - 10%. When you have made your profit sell up and move on to your next trade.
  8. Try not to lose more than 4 - 5% on any trade. This means that if you have made a mistake and your stock starts going down then you need to sell at a loss and get out.
  9. Set a stop-loss. To make sure you don't lose more than 4 - 5% on a trade you need to set a stop-loss when you buy the stock. A stop-loss will automatically close the trade for you, even if you are out having fun, if the stock price falls by the amount you set e.g. 4 - 5%.
  10. Remember - stock trading is all about calculating the risk and reward ratio. Not every trade will be a winner so you need to make sure that you make more money with your winners than you lose with your losers.
The subject of technical analysis and charts is vast, but the points above are the basics and some professional traders use nothing but the basics of support and resistance to time their trades. For a video on how to use stock charts to trade breakouts see - how to trade breakouts