How to trade stocks for beginners

The meeting place or market where stocks, shares and other securities are traded is commonly known as the Stock Exchange. Some Exchanges are physical locations where traders trade stocks and shares, while others are virtual, consisting of a series of networked computers enabled for electronic trading. There are two types of markets, the primary market and the secondary market. The primary market deals with helping companies sell shares in their business. When a Company does this for the first time, it is called an IPO or Initial Public Offering. The secondary market deals with trading those same shares and those of other companies, between traders and institutions without the participation of the company itself.

There is a wide range of knowledge and skill sets required to trade stocks successfully, and in this article I will discuss how to trade for beginners by focusing on the top three areas of critical importance to a beginning trader. These are how a stock is valued, how a trading plan is created, and the types of trading methods that can be employed to execute a trade.

Stock trading profits are derived from buying a stock at a low price and selling it at a high price, covering all trading expenses and generating a return on the original investment. The value of a share is determined by the two economic factors that are the supply and demand for the share, and the market factor is the price/earnings ratio. The volume of buyers bidding on a stock, or demand, versus the number of sellers willing to sell at the offering or offer price determines the stock’s price. Therefore, the price is driven by market forces, almost like a continuous cycle of auctions. There are several other factors that influence the selling price and purchase price of a stock, including the earnings value price, which determines the intrinsic value of the stock. Intrinsic value is the value to the holder derived from the stock when it is purchased as a dividend.

There are a number of things to consider when creating a stock trading plan. The first three include the needs and goals of the merchant, the budget, and the strategy to achieve the needs and goals of the merchants.

First, the objectives are determined and clearly defined in writing. The budget is established, along with the trading account and the brokerage house necessary to execute each operation. Then the strategy is determined. This is the most critical of the elements of a business plan. It is true that a trading plan cannot be executed without money and is derailed without a goal, however, without a strategy or the methodology on how the goal will be achieved, all is lost. The strategy will vary from trade to trade, and should be a set of learned skills that one can acquire through an online course or by attending a physical seminar. Purchasing an online course is a great place to start, as you can review the materials on your own time and start learning the strategies like a home study course.

When considering a stock, there are two types of analysis available to the trader, technical and fundamental analysis. Fundamental analysis considers factors such as the financial health of the company in which you are considering a stake, the historical value of the stock or the price points at which it was previously sold, any corporate news and press releases on decisions surrounding to the direction of the business and activities, the current economic climate and the state of the markets in which the company operates, as basic elements. By considering these factors, the trader can begin to paint a picture of what a stock in this company will really mean to his or her portfolio, will it be a shining star, or will it be difficult to determine what the stock’s future holds. Traders using this style of analysis will generally become long-term investors, holding the stock for a long period of time, even years.

Those who are more interested in short-term trading of a stock will use Technical Analysis. Technical analysis involved analyzing the patterns and trends in the stock’s price. Taking advantage of volatility or market conditions in his favor, the technical trader buys low and sells high, earning a profit from the transaction. The most prolific of these traders are usually day traders, so named because they won’t hold a stock for more than a couple of days and, in most cases, buy and sell on the same day with an hour difference, at times minutes. This is a very different trading practice than those using fundamental analysis.

Finally, training is essential. Getting the right information and having the opportunity to learn about this field is essential before you invest your own money, especially borrowed money. Learning online through a home study course is probably the best place to start for a beginner. These home study courses are comparatively low in cost and will give you the fundamental knowledge and skills to get started. Always remember that the most valuable thing in stock trading is not money, it is knowledge. Your education on how to trade stocks is the most crucial element to your success.