Are you a new investor or trader looking to learn the stock trading basics? But, it can often be very time consuming and confusing trying to sort through all the jargon associated with buying stocks online. However, from fundamental analysis to technical analysis and long-term investing versus day trading, plenty of concepts are out there to learn on how to start stocks trading.
Stock Trading Basics – Fundamental Analysis
Fundamental analysis is one of the stock trading basics that you should be familiar with as an investor or trader. There are plenty of basic concepts that you can pick up just by looking at a financial website or forum. Some important stock basics include price per earnings ratio, share price, earnings per share, volume, and more.
Some investors/traders strictly use fundamental concepts to complete their analysis on the market. The fundamentals of a company tells the financial shape they are in and how they compare against their competitors.
Stock Trading Basics – Technical Analysis
Technical analysis is another one of the important stock trading basics that every investor should become familiar with this concept. Most technical concepts look into stock charts and graphs that show the direction of a particular stock is taking during a set time range. However, many technical stock traders do not even look at fundamental data and base all of their trading decisions on the movement and patterns that a stock is taking.
Stock Trading Basics – Stock Trading for Beginners
Stock trading basics involve several concepts as identified above that investors need to be educated on. But, both fundamental and technical analysis are a part of these basic concepts that can eventually help you when you buy stocks. Keep in mind that these concepts are just a high level overview of terminology and strategies used by investors today.
Stock Trading Basics – Type of Order
Today’s investment climate is constantly changing, which is why you need to stay up to date on the latest stock market information. Rather than keep missing a trade or let your emotions controlling how you trade and often turn a profitable trade into a losing trade. In fact, you can let your online stock trading system get you in and out of a trade for you without keep looking at the computer screen.
You can specify the price you want to enter and exit your trade. Also, you can do this at any time you want via your online stock brokers. All you need to know are the following correct trading terminology and place your trade accordingly anytime you want:
- Market Order: This order simply tells the broker to buy or sell a stock at whatever price the stock is trading at (sometimes known as best price).
- Limit Order: It tells your broker only to buy or sell a security at a better value than it is at present in the market. For example if a stock is trading at $50 and you place a limit order to buy at $45, this means you will not buy the security unless it goes to $45 or lower. It can be beneficial if you want to buy a stock after a small pullback. You can also place a sell limit at a better price than it’s currently trading, i.e. at a higher price.
- Stop Order: You use a buy stop order to long the market when the stock price is above a certain price; or a sell stop to short the market when the stock price is below a certain price. Then you will not be able to miss the trade that you are after
- Stop Loss Order: It tells your brokers to cut your losses and exit the trade at a loss. In fact, you can specify what price you want to exit the trade if it goes against you.
- Contingency Order: It allows you to buy or sell a given security based on a given condition. You do this when you open the trade and tell your broker to put in a stop loss to get you out of the trade if it goes against you.
- Trailing Stop: It is when you want to follow a given security up. For example, you buy a stock at $20 and put a trailing stop $3 lower than the stock. Then the stop will move up with the stock trade. So if the stock goes to $29 the stop will be at $26.
The act of trading stocks is pretty simple. When you want to buy a stock, surely you’ll place your bid and someone who wants to sell their stock can accept your bid. You can also find yourself in the role of the seller if you believe that a stock you’ve previously purchased is about to go down or doesn’t seem to be going higher in price. However, one important thing to remember about stocks is that prices can rise or fall based on real news, rumor, or speculation and it’s not a game for the faint of heart.
Many new traders who are unsuccessful are the ones that just jump right in without researching beforehand. To be successful, you need to be educated in trading and in the stock markets. It is the best way not to lose a lot of money quickly.
These stock trading basics will help you as a beginner/newbie. But as you start trading more often, you will need to know more and more. So, do your homework, tread slowly and don’t risk the farm on hunches.