business terms

I want to start trading stocks too!!!

I have been getting a lot of inquiries from people, who would like to make some extra money trading the stock market. It is only right that I tell you the good and the bad; First the bad, YOU CAN LOSE MONEY IN THE STOCK MARKET if you do not properly educate yourself. Alright, now the good stuff.

When you trade the market, you are looking to predict when prices will go up and/or down. Then, you must decide the time frame you wish to hold your stocks. The longer the time frame, the easier it is to predict prices. What does all of this mean? If you want to hold your stocks for 20 years, you could comfortably say the stock will be higher because history shows stocks trend higher over years. Therefore in 2-3 years (outside of a recession) you can also say the market will be higher. But, when you analyze a smaller time frame such as a day or even 3 months, it’s harder to predict the movement of the stock prices. However, most people looking to make quick money try to catch the short term movements in the market without educating themselves first. If you want to do short term trading, you have to do your research.

First: Where can I find basic stock information?
1. Go to Google Finance, http://www.google.com/finance, and type in your favorite publicly traded company. So McDonald’s (symbol MCD) is a good pick but not Chick-fil-A (since it’s privately owned). It will come up and you will see what their stock price was last traded at and some information on the company. Now your goal is to utilize whatever information you can to predict if this stock is going to go higher over some given time frame.

Second: How do I place an order?
Once you have decided to buy a stock, the easiest way to place the order is to open up an online brokerage account. Sounds scary but it really isn’t. It’s just like opening an account with an online bank (e.i. ING or HSBC). You can pick from Etrade, Charles Schwab, OptionsXpress, Sharebuilder, TD Ameritrade, etc. For those who are starting with a dollar amount less than $2,000 OptionsXpress and Sharebuilder I know does not require minimum balances. The application will ask for basic information along with your SS# for tax purposes and your level of trading experience for their demographics. The type of account you want is a cash account (NO MARGIN). Last thing is you want real-time quotes so read and agree to the terms.

Third: You have to read!!
If you have no clue about assets and liabilities, the first thing you need to do is read Rich Dad, Poor Dad by Robert Kiyosaki. Then read Jim Cramer’s Real Money: Sane Investing in an Insane World. You can purchase both of these books easily from amazon. I am not telling you to read these books for your health!! They will give you a nice foundation for you to build wealth. Rich Dad, Poor Dad gives you the basic mindset on what assets are and how to start building them. Jim Cramer teaches you about the asset class of stocks and how to go about picking the right stocks to buy. I like Jim Cramer’s book because it is a fairly easy read and he does a great job at breaking down the basics of stocks in an entertaining fashion. Lastly, you have to keep up with current business news. So watching CNBC and reading articles from Wall-Street Journal, Investors Business Daily, and Yahoo/Google Finance is necessary.

After you finish reading this post and you say, “man, I still don’t know what to do!” It’s because you did not read the books I supplied, explored Google finance, watch CNBC (especially from 4-6pm est: if you work, watch the clips online), nor did you open up a brokerage account. Once you do all those things AND read this post, will you the basic skills needed to trade the stock market.

What type of trader/investor do you want to be and what you need to do?

1. I have no clue about the stock market but it looks interesting and want to make some money. I really don’t have a lot of time to learn but I have a couple hundred dollars that I can put into the market. Maybe one day it will be worth a lot of money.

Answer: To be honest, to make a lot of money from a little without doing much work is called the lottery. But because of the times we are in, there is a couple of what I like to call hope plays out there. Research the stocks that have been beaten up the most, meaning their stock went from 80 dollars to like 50 cent or 1 dollar. Then research the company!! This is KEY! You have to find a company that you think will survive this recession we are in. Real Estate and Financial companies is a good place to start. A company who stock that has been sold off to around a dollar could possibly one day hit new highs. A hundred dollar investment could be worth $5,000 in about 10 to 20 years.

2. I have a 401k or Roth IRA and it is losing money. I don’t know what funds to put my money in. I want to learn about the stock market so I can better manage my retirement account.

Answer: The best way to manage your long term retirement accounts better is to learn business cycles and the seasonality of the stock market. You will have to keep up with business news, what sectors are growing and so forth. To do this, watch CNBC more often to understand business jargon. You want to reallocate your funds maybe once or twice a year. Also, moving your money to cash is just fine!! People who say dollar cost average in a declining market and never leave your money in cash is a broker trying to make money off fees and not performance.
a) One rule of thumb to follow is buy the market in October and move your money to cash in May. This one rule has beaten the market averages over time in a major way.
b) If you don’t have a 401k or Roth IRA, get one and put $25, $50, or whatever you can afford into your account every month. If you are young, this is one of the best things you can do. If you follow the sell in May rule, then during the summer months, you still deposit the money in your account, but leave it in cash until October comes. This way you stay discipline in depositing the money every month.

3. I have no clue about the stock market but I want to learn and spend 1-2 hours a week trading stocks. I have about $2,500 dollars that I can use to get started. I believe the more I work, the better my trades will be. I want to stay in a trade maybe 3 months to 2 years (this current market, it’s more like 2 weeks to 3 months).

Answer: Personally, I think this is where most people would fit. Anyone who has any wealth or wants to build wealth will have to interact with the stock market. So I say you might as well learn. To do this, you need to keep up with business news (via CNBC), Wall Street Journal, Yahoo Finance, etc and you also need to learn the dynamics of the stock market. Once you learned how to trade, it will only take you about 1-2 hours a week to manage your portfolio.
b) Open up an online brokerage account and learn the platform. It’s fairly easy to do.
c) Find one stock and follow it. Use this stock to see how economic news items and stock specific news items affect stocks movement.
d) It is imperative that you read the books mentioned in this post and learn market jargon through CNBC and Google finance.
e) Once you have done the basics, I will help you develop more skills to hone your skills using technical analysis, fundamental analysis, etc.

4. I have no clue or some clue about the stock market. I am really interested in it and want to be the best trader I can be. I see myself trading well and can possibly make a lot of money from trading. I will spend 10-20 hours a week working on being the best. I want to be able to trade stocks and invest in them well. I want to get to the point where I don’t have to work.

Answer: This will take about 3-5 years to accomplish. If you really want to do this, contact me. The first thing I’m going to do is give you a book list of 5-10 books to read and homework to do before we even get started. Why I say this. There are no secret tricks to learning the market, you just have to put in the time and effort. So I have to weed out the people who think they are going to make some quick money overnight.


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