Stock Trading for Beginners: Step-by-Step Guide

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Stock Trading for Beginners: Step-by-Step Guide



By Tim Bohen From StocksToTrade

So you want to learn stock trading for beginners? You’ve come to the right place.

Breaking down stock trading is what we do here. 

There’s so much to learn about trading and the stock market, it can be hard to know where to begin. Don’t stress it! We’ve got smart tips for you to take a cool, collected approach to the markets. 

Strap in for your stock trading for beginners guide and be sure to take notes along the way. Let’s get to it!

Table of Contents [show]

Stock Trading for Beginners: Should You Start Trading Now?

If you listen to my daily premarket sessions, you’ve probably already heard me say this…

I think we’re living in the golden age of trading.

 Every day it seems like there are a ton of plays out there. We’re seeing a lot of stocks that follow repeatable patterns, then knock out monster swings.

And if you miss the morning’s big gainer, all you have to do is wait for the next wave.

There are a lot of reasons for this, not all of them good. People are staying home and getting bored — which is never a good reason to trade. And the ‘get-rich-quick’ mentality is only growing in this bull market.

I’m not telling you this to convince you not to trade — just the opposite! I want you to avoid the mistakes that cause a lot of new traders to give up in their first month.

What to Consider Before Starting to Trade Stocks as a Beginner

You’ll have a lot of choices to make when you start trading as a beginner. All of them depend on one thing — your goals.

Your goal might be trading on the side. Or you might be looking to trade most days. Both goals are valid, but not for every trader. 

You have to find out what works for you, and stick to it.

Stock Trading for Beginners & How to Learn Stock Market Trading

All right, this is the fun part!

I want you to watch this video and think about something super trader Roland Wolf says.

Did you catch it? Stock trading for beginners isn’t easy. There’s no secret, no magic trade that’s gonna turn you into a millionaire. Sorry. But that’s actually a good thing.

The market is just a bunch of people trying to buy and sell stocks.

Now, the good news: The internet is filled with resources. There are ‘stock trading for beginners’ PDFs and ‘how to invest in stocks for dummies’ websites. There are regular guides to stock trading and ‘quick’ guides to stock trading.

But you don’t need to look much further. We’ve got a lot of FREE and no-cost resources waiting for you.

If you want to take your studying up a notch, join our SteadyTrade Team. You’ll find a community of motivated traders happy to share strategies.

I also offer twice-daily SteadyTrade Team webinars to answer questions, look at potential plays, and talk about trends. If you’re serious about your trading, we have a whole curriculum ready to go. Check it out!

Stock Trading for Beginners: How Does the Stock Market Work?

If you’ve watched a movie from the 1980s that featured trading, you probably have an idea. Wall-to-wall traders, yelling and gesturing wildly…

It’s like the craziest auction house you can imagine.

The truth is, the ‘open outcry’ style of trading was on its way out even then. And now, it’s been almost totally replaced by computers.

Still, the idea’s the same. You’ve got buyers and sellers, and they’re making deals based on supply and demand.

When there are more prospective buyers than sellers, the price goes up. When the opposite’s true, the price goes down.

And the matchmaker? That’s what a stock exchange is for.

Stock Trading for Beginners: What Are the Main Stock Exchanges in the World?

Almost every country in the world has a local stock exchange. But if you’re looking for a larger company’s stock, chances are that it’s traded on one of the world’s main stock exchanges.

There are 16 global stock exchanges capitalized at over $1 trillion. Even among these heavyweights, there are major differences.

Companies list on major exchanges for increased capital and liquidity. Alibaba (NYSE: BABA) was the biggest initial public offering (IPO) in stock market history, partly because it listed on the New York Stock Exchange.

The differences aren’t limited to money. Alibaba spin-off Ant Group was set to have an even bigger IPO than its parent company … then the Shanghai and Hong Kong Exchanges suspended it.

New York Stock Exchange (NYSE)

The NYSE is home to nearly one-quarter of the world’s market cap.

Its trading floor is the site of every famous stock market movie scene ever. And its listings used to be even more dominant in the U.S. and the world.

Just because the Nasdaq has Apple and Tesla on its roster doesn’t mean the NYSE has lost its influence. Just check out its $81 billion year in IPOs.

Six of the seven largest tech IPOs of 2020 listed there. And if you count special purpose acquisition companies (SPACs), you can add an extra $100 billion to the year’s new additions.

Nasdaq

Nasdaq is the other U.S.-based powerhouse, with a growing share of market cap. Once viewed as an upstart market to the NYSE, its tech savvy has helped it attract many of the world’s hottest stocks.

Nasdaq pioneered electronic trading, now considered the industry standard.

This is distinct from the NYSE’s auction market format. Transactions on Nasdaq must go through a dealer, called the market maker.

In practice, both these leading exchanges use market makers to improve liquidity. And they sure have liquidity. The two are home to nearly half of the world’s stock value, and a large percentage of its trading volume as well.

Shanghai Stock Exchange

China’s biggest stock market is the third largest in the world and gaining its footing as the country’s leader.

On the other hand, it’s greatly undervalued. The total market cap of all of China’s exchanges equals less than a third of the country’s gross domestic product (GDP). That compares with 100% in other advanced economies.

It’s thinly traded because stock market participation in China is low. And Shanghai’s limits on foreign participation don’t help matters.

Tokyo Stock Exchange

The Tokyo Stock Exchange is the fourth-largest stock market in the world by market cap.

But this isn’t its historic highwater mark.

In 1990, it accounted for 60% (!) of the world’s market cap. When the bubble collapsed in 1991, it took the market down with it.

London Stock Exchange

By market cap, this is the fifth-largest exchange in the world. But its importance runs deeper than these numbers.

In different forms, its history goes back to 1571.

Its current incarnation laid a template for the modern stock exchange. And for a long time, London was the financial center of the world.

Stock Trading for Beginners: Types of Stocks You Should Know

People talk about stocks in a lot of different ways. There are pot stocks, blue-chips, preferred stocks, and penny stocks. You’ll find these references in guides to stock trading for beginners.

I’m a fan of learning as much as you can about every aspect of the market — even if you’re not going to trade in it. But let’s spend a bit more time on the ones you’re probably most interested in.

Penny Stocks

If you want to learn day trading and you’re a beginner, penny stocks can be a good place to start. But if you want to learn how to invest in stocks, and you’re a beginner with only a little money — stay away from penny stocks.

This niche is better for trading, as these stocks’ values tend to rise and fall with speculation.

If you can ride the wave and get out before it crashes, you can potentially make money. But if you fall in love with ‘the next Microsoft,’ don’t say I didn’t warn you.

Medium- and Large-Cap Stocks

Penny stock trading has a low entry point for beginners. But you shouldn’t limit yourself to trading only cheaper stocks.

Not all larger-cap stocks are the boring ‘blue chips’ of investment portfolios. The appeal of these large-cap stocks is that they’re supposed to be stable.                                                   

But just look at Tesla’s two-month chart:

stock trading for beginners tsla chart

Tesla (NASDAQ: TSLA) 2-month chart (Source: StocksToTrade.com)

Just because a stock is big doesn’t mean it has to be boring.

Value Stocks

Value stocks are more in the ‘investing for beginners’ manual than the ‘trading for beginners’ one.

The idea behind these stocks is that they’re undervalued. Traders believe their assets or earnings aren’t reflected in the stock’s price.

Observations like this might signal a future move … But when you’re trading, you need to see that move happening.

Discover What Type of Trader You Are

When you’re learning how to trade in the stock market as a beginner, you need to block out a lot of noise. Just like in high school, peer pressure in the stock market is a real thing.

If you’re reading this, you probably already know that you want to be a trader and not an investor. But you’ve still got a few decisions ahead.

The main one is deciding how active a trader you want to be.

Are you going to watch charts from market open to close? Maybe day trading will work for you.

Are you a bigger fan of the long play? Swing trading or position trading might be more your speed.

When you’re in the stock market trading as a beginner, this is the most important decision you’ll make. Pick a style that doesn’t fit you and you’ll lose your passion over the long haul.

How to Define Your Goals and Stock Trading Strategies

Every beginners’ guide to stock trading asks you about your goals. “Do you want to be a millionaire?” Well, that’s one example, but there are plenty more that qualify.

You’ll have to figure out your goals before you start trying strategies. 

Stock Trading for Beginners: Finding a Stock Trading Platform

Now, this step is key. Your trades will suffer if you don’t have the right equipment.

The real difference between stock trading as a beginner and as a pro is doing your own work. Amateurs go to stock analysts or chat rooms for their trading ideas. Pros know what they’re looking for and find it for themselves.

But all the knowledge in the world won’t help if you need to comb through 20,000 stocks on your own. You’ll need a good stock screener, like the one that comes with StocksToTrade. This is my favorite trading platform on the planet for a reason.

Here’s just a sample of what I love about it…

A Wide-Ranging News Scanner

News catalysts can come from anywhere — press releases, SEC filings, Twitter. StocksToTrade’s top-line news scanner puts all these news hits in one place.

Awesome Charting Capabilities

Most traders base their ideas on chart patterns. To do this well, you’ll need a trading platform with flexibility and precise indicators. StocksToTrade delivers clean and adaptable charts that are accurate to the second.

A Ton of Customizable Features

Need Level 2 quotes? (You do.) They’re available as an add-on. Want to be plugged into great alerts? We’ve got ‘em.

SteadyTrade Team Tie-Ins

Want to do the same stock scans we do on the SteadyTrade Team? We’ve got downloadable screeners, ready for import.

Try StocksToTrade now — only $7 for 14 days!

How to Analyze Stocks

In stock trading as a beginner, one of your biggest challenges is narrowing your focus. Stock screeners will help, but they can’t make decisions for you. You’ve got to know what you want out of a trade to know what to look for.

If you’re looking at the basic value of the company, you’re doing fundamental analysis. If you’re looking at the stock’s performance, you’re doing technical analysis.

People often think fundamental analysis is only for long-term traders and investors. But that’s not always true. It’s a good idea to learn both and know when to put them to use.

How to Buy Stocks as a Beginner

When you decide to start trading, trade defensively. Heck, this is the way I still trade.

When you risk your trading health on a single trade, you’re not acting like a professional trader. You’re gambling.

Traders care about consistency more than winning any one trade. They’re doing this for a living.

And one of the keys to doing this well is to correct your mistakes. In this video, SteadyTrade Team co-trainer Mike “Huddie” Hudson talks about his journey from hobbyist to pro.

How to Trade Stocks as a Beginner with a Little Amount of Money

Beginner or not, the #1 thing you should pay attention to in trading is your account’s health. Always.

It doesn’t matter if you’re just starting out or have $100,000 in your brokerage account. You never want it to get to zero.

But you need to be extra careful if you’re starting out with a small account. Some traders won’t risk more than 1% of their account value in a single trade. That’s hard to do if you’re starting out with $100.

You technically can start with that little capital. But maybe instead take some time to study, while banking more money for your trading account.

5 Things You Have to Do to Start Stock Trading as a Beginner

So you’ve got your broker, some trading capital, and a trading platform.

You’ve even got your strategy figured out? Bonus!

Here are the next steps to making a trade…

Consult Your Watchlist

If you’ve already got some potential plays on watch, you’ll be ready when they make a run. Watchlists are how you track hot sector plays, former runners, or whatever catches your eye.

Use Your Stock Screener

There are a lot of scans you can do to find potential trades. StocksToTrade comes with 40+ built-in scans, like the top percent gainer scan.

And you can filter for liquidity. When you’re stock trading as a beginner, I’d recommend looking for at least one million shares in volume. You can also filter it by price, and screen out stocks too big for your account. You can screen for float.

Ultimately, you’re looking for stocks making big moves.

Check for Signs

Ideally, your trades will have a catalyst, be in a hot sector, and trading at heavier than average volume.

Other signs will help you figure out the type of trade to make. Is it a former runner approaching a 52-week high? You might want to look for a breakout.

StocksToTrade comes with worksheets to help make this step easy.

Write Down Your Trading Plan

It’s not enough to identify a potential trade. You have to commit to your trading plan — and that means writing it down.

A good trading plan will have defined entry and exit points. Top traders stick to the plan and don’t let emotions take over.

Track Your Trade

The last step in a trade is to write it all down. Win or lose. You’ll never develop as a trader if you don’t have an objective sense of what you’ve already done.

Conclusion: Stock Trading for Beginners

When you’re starting to trade stocks as a beginner, all of the temptations hit you at once.

Can you make a million dollars? Sure.

Can you go broke? Definitely.

Now, put those hopes and fears away and get disciplined. Build risk and reward into your trading plan, then trade according to your plans.

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