There is no such thing as a standard procedure that works out fine for every trader out there. The success of your trades is highly dependent on you and the strategies that align well with your goals. The more commitment and education you pour into such a market, the more sizable the profit you earn. Even though there are infinite windows of opportunity, the risks are not to be underestimated. We’ve made a guide that should help you wrap your head around the basics of trading and how you can prepare yourself for such a journey.
Getting Familiar with the Market
Before you dive head-first into such a challenging environment, it’s important to ensure that you’re familiar with the basic concepts and common information. A stock is simply a financial piece of a company. These stocks are used to determine the value of the company, commonly referred to as shares. Stocks are constantly fluctuating because their prices are dependent on the movement of the market, which never stops. There is no such thing as a set price when a stock is in the stock market. In most exchanges, there are certain time windows that permit the trading of stocks. It is possible to trade outside of these windows, referred to as pre-market or after-hours trading.
To be able to know how a stock is doing in the market, you’ll need to check the ticker symbol next to its name. You can find the quote or price of a stock of any publicly-traded company with a quick search on the internet. The goal of trading stocks is to buy them on the cheap and then sell them later on for a profit once they increase in value. While this process may seem simple and straightforward, certain complexities make it harder than it seems. It is possible to sell the stocks quickly, referred to as short selling, to avoid losing money or to make money quickly. There is also a school of long-term investing that tends to avoid selling stocks too early. It’s important to get yourself familiar with spreads, bids, and other dynamics that control the prices of stocks.
Landing on the Right Broker and Platform
Even though there are ways where you can directly buy stocks from the company through direct stock plans or pre-IPO investing, the majority of stocks trading takes place through brokerages and trading platforms. A broker makes it much easier for traders to buy and sell their stocks on the market. Not all brokers are the same, especially when you take into account commission, honesty, reliability, and the right technology. You want traders who can execute your trading dynamics swiftly without outages, not to mention that they shouldn’t be charging you commissions that are over the top. The trading platform is offered by the broker, and it’s meant to be a technologically advanced market platform that facilitates the viewing of stock prices, charts, and other research elements that are used to place orders efficiently. Thanks to smartphones, it’s possible to find the best trading app for your operations that allows you to place orders with absolute ease. These applications allow you to trade almost every asset accessible in the market with swiftness and reliability. It can also offer real-time updates and notifications that help you stay on top of the market dynamic.
Day Trading and Swing Trading
There are two types of trading; day trading and swing trading. Day trading involves multiple trades done over a course no longer than a day; day traders rarely hold stocks for the next day. Swing trading is considered a long-term approach to stock trading. Swing traders know that profitable trading can take days, weeks, or even years in certain cases to be successful. A day trader trades professionally in a daily fashion, while a swing trader isn’t interested in making a career out of it. There are more restrictions when it comes to day trading; the most prominent being the “pattern day trader rule”. This rule is mandated by the NYSE regulatory body to ensure the safety of the investor’s capital. Anyone that makes more than 4 exchanges in 5 days is referred to as a pattern day trader. The trader must have a minimum equity of at least $25,000 in their account to be able to trade.
Determining which one is more suitable for you is highly dependent on what you’re expecting to get out of it. Even though both traders want to make money, their methods and style can be quite different. Understanding how technical analysis methods work is essential in swing trading, whereas day traders need to have a pretty firm grasp on charting systems and software tools. If you don’t have enough capital to pursue day trading, you might want to consider swing trading. But you will still need to ensure that you have saved enough capital to carry you safely through this endeavor; ideally, it should be around $10,000. Since investments take a longer time to come to fruition, commissions shouldn’t be problematic in the case of swing trading.
Determining a Purpose
Before you begin any actual trading, you might want to ask yourself what you need from trading. Whether trading is something you want to do every day as a career or occasionally do it when you have the time, determining the answer is essential if you want to figure out a strategy that could make you profit. There is no one-size-fits-all answer here that can make trading easier for you; you have to adapt and adjust according to what you actually need. You can invest in quick trades that can be done in minutes, or you can go for the long haul and wait on stocks for years to skyrocket. Your financial state and goals are the main determinants in this equation.
The gears of the financial world are quite huge, and even the biggest whales in such an industry are not vital to its existence. Trading in the markets is not an easy feat and it’s far from being an activity that you do in your leisure time. The process requires a lot of patience, dedication, aptitude, and education for one to do it right. Take as much time as you need to prepare for trading before you begin investing any money in the process.
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