This article is directed to anyone who is wishing to learn about the stock market and how to trade stocks There are many reasons to become involved in the stock market and the first point to make is to differentiate between traders and investors. And the difference is mainly in their respective time horizons. Investors tend to take a longer-term view in their stock market holdings and in their reasons for acquiring new stock positions that do traders.
The investor is likely to be mostly concerned with possibilities for a company’s future growth, its payment of dividends, and perhaps it valuation compared to its current market price. That method is often referred to as a buy and hold approach. The “buy and hold” signifies that stocks are held through the inevitable up and down fluctuations in the stock market as long as their underlying attributes remain intact. Warren Buffet, the great and well-known investor, and others, have described their favorite hold period as “forever”. I think that explains their position, and there are few that can claim to equal Warren Buffet’s success as an investor.
Generally, the investor is more conservative compared with the trader who can perhaps be better described as a speculator. The trader’s methods are targeted to taking advantage of the relatively short-term fluctuations of stocks that can take place over days, weeks, or months. As one of the great speculators of recent times I would cite George Soros who reportedly made $1 billion in one day during the British currency crisis in 1992.
An individual trader or investor, who is not at or near the level of the greats such as Buffet and Soros, and few are, has no affect on the movements of stocks because the total monetary value of their combined transactions is so small in comparison with that of the really big traders. The big money that drives the market comes from institutions, the hedge funds, mutual funds, insurance companies, pension funds, and so on.
The title of this article establishes that here we are addressing the trader, although much about how to trade stocks also applies to the investor. The main common element being that to become a proficient participant in the stock market demands a lot of reading and study in order to become familiar and understand how the market works.
Resources for learning how to trade stocks.
Much of what must be learned is self directed and sourced from various printed publications and other resources available through the internet, although there may be some courses of study available from local educational institutions, public libraries or other community sources.
Perhaps the most valuable source of information is the stock market itself, where the individual stock exchanges and many individual stockbrokers provide a wide range of educational and training facilities for self study that is accessible through the internet.
Among the trading resources mentioned above that are offered by many stock brokers and are also available independently on the internet, some free of charge, is “Paper Trading”, also called virtual trading, that allows the participant to operate an account in an identical manner as a real account but does not require real money. Those are for every newcomer to check out.
There are hundreds, probably thousands, of books available on stock market topics, many available from local public libraries but I am going to recommend just a couple and if you can understand and master what they have to offer you will become very well informed and know a lot more than most beginners. I would go as far as to say that those alone, if faithfully followed, may be enough to prepare for a first cautious entry into trading, the buying and selling shares to make a profit.
But be careful, the stock market is unforgiving of poorly executed trades and trading mistakes and that is why learning from experience is the final factor in becoming a successful trader. So spend some time with virtual trading to find out whether you really are ready to trade (or not).
The primary book source is called “How to Make Money in Stocks” by William J. O’Neil, most of what you need to know for about $15, check it out first at your nearby bookstore and see what it has to offer. I won’t go into details here, there is just so much of value in the book and it should be read and re-read. Other similar books by O’Neil are excellent too, coming from a successful investor and trader and giving the details of a proven winning system.
Other O’Neil inspired reading is the newspaper Investor’s Business Daily, founded by O’Neil, it has much of what you need to know, check that out too. There is also The Wall Street Journal and several financial magazines that can help add to the knowledge base.
A second book I suggest is Mad Money by the flamboyant successful trader and former fund manager, Jim Cramer, now a nightly television personality. The book is a little above the beginner level but a good read anyway and something you can learn from. He has other titles published under his name.
Two other internet resources I always recommend to anyone wishing to find out how to trade stocks are Yahoo.finance.com and Marketwatch.com, they too have abundant information, far too much to describe here. There are many other similar internet sites, those are the sources I use to stay updated.
Your ultimate objective is to learn how to find the right stocks to trade, when to buy them and when to sell them, and to always practice appropriate risk management that allows you to cut your losses early and let your profits run when they occur. Read Paul Koger related articles to know more in trading.