Posted by forex at 3:58 AM
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How to Trade Stocks
1. Learn how to read a chart. There are several online resources to help beginners read stock charts. Understanding price action in terms of moving averages, oscillators and candlestick patterns and finding good entry points will ultimately make the difference between simply owning a stock and making money on it. Focus on how to identify a buy signal and a sell signal.
2. Simulate. The market can move in mysterious ways and there is simply no substitute for experience. Using a trading simulator before buying is a great way to get a 'feel' for the market, for how stocks fluctuate and respond to news that even back-testing a strategy won't provide. The gains in a simulation account won't be real, but more importantly, neither will the losses.
3. Scale into positions. Even the most experienced traders tend to forgo trying to time exact tops and bottoms in stocks. Instead, they prefer to scale into a position, that is, to buy incrementally so they can take advantage of lower prices and minimize risk. To scale in effectively, it must be understood in advance how much total capital will be allocated to the stock.
4. Swing trade. Sometimes, the best defense is a good offense. Having a good strategy and sticking to it will increase odds of success and get a trader to exit a position before too much damage is done. In general, start out with longer time frames and after the larger gyrations of the market are mastered, move toward day trading and other short-term strategies if desired.
5. Protect capital. Position management can mean knowing when to cut a loss, when to take partial profits, exiting a position completely, or hedge it in some way, but the No. 1 priority of any trader is to survive to trade another day. Capital is the lifeblood of trading and significant losses can dramatically impair the effectiveness of an account. Selling covered calls is an easy way to lock in profits and protect against potential losses.