Posted by forex at 6:29 AM
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1. Educate yourself. The only way to make a living from trading stocks is to learn as much as you can about the stock market. Read publications like 'Smart Money,' 'Forbes' and 'Business Week.' Check out websites like Bloomberg University for in-depth information. Value Line offers a service providing earning history and other useful information about the individual stocks. Take a financial analysis course to learn how to understand earnings reports and profit and loss statement. Never stop learning about stock trading.
2. Trade on paper and play online stock trading games. Once you have a fundamental knowledge of stock trading you need to trade on paper to test your knowledge and build your skills and confidence. Stock trading games allow you to pick stocks and make (or lose) virtual money. The software keeps track of all trades and the price changes. Some games offer prizes for the top traders. One game is the Investopedia Stock Stimulator.
3. Decide on a trading strategy. There are many ways to trade stocks. Some people use day trading methods which try to profit from short-term movements in an individual stock. Trend trading follows the current movements of a stock, assuming that it will continue in a particular direction for awhile. Swing trading uses technical analysis to take advantage of short-term (one to four days) price movements of individual stocks. Some traders use a few trading strategies and others use just one. It is best to start with only one method and become experienced in using it before using other methods.
4. Create a trading system. According to the website Stock Investing Made Easy, you should 'build a profitable stock trading system. Define which stock to trade, when is the best time to buy, when to sell and for how long you should be in the market.' If you make these decisions before you start trading and remain disciplined you will be more successful. Many investors lose money when they allow emotions to cloud their judgment.
5. Pick stocks with good overall value. Warren Buffet is a billionaire stock trader known for his method to find companies with growth potential. Start by looking at industries that you are familiar with. Consider investing in the companies whose products you use and like such as food, clothing, computers or prescription drugs. Look for companies with steady earnings over the past five to 10 years. If the earnings have accelerated recently that is a good sign. Other things to check out are the price/earning ratio and steady dividends. Low debt is also a good indication of a well-managed company. Good cash flow is also important. These are only general guidelines. Other more specific information depends on the industry such as a bio-tech companies would have money set aside for research and development while a food company would not.
6. Find a broker. A stock broker executes your trades. There are full-service brokers like Morgan Stanley and premium discount brokers like Charles Schwab and Etrade. There are also standard discount brokers like Scottrade. Discount brokers offer reduced commission rates. A discount broker is best if you plan to make all of your own trading decisions. But many discount brokers these days offer many services usually found only with full-service brokers like research tools, online seminars and investment advice. Decide what your needs are and then read Smart Money's ratings of brokers.
7. Use only money you can afford to lose. The only way to trade stocks is with money you don't currently need for living expenses. Financial planners suggest having six months of living expenses in a savings account. If your stock trading is not successful in the beginning and you lose money it should cause a dire financial situation.
8. Start small. As you begin to trade stocks, start with only one or two stocks at a time to get a feel for what it is really like. Trading on paper or playing online stock games does not really prepare you for what it is like to trade in real time. As you experience and success grows, you can trade more stocks. Many people do make a living from trading stocks, but it takes knowledge, experience and discipline to be successful.