Trading stocks for beginners

There are a lot of strategies to trading securities (including stocks) and if just starting out, it is best to stick to one or two strategy to build the account up. At this point loses cannot afford to be made. Will talk about strategy soon.

Concept of making money with trading

There are two ways to make money by trading and the first is the obvious one. It is called the long position which is to buy low and sell high. Basic economic 101 yes?

The other is called the short position where one sells high and buy low. This can be tricky to explain so just google it. The overall concept of the short position is when the stock goes low, money or profit is made. Now how it works in one sentence is (again google it), when selling short, the stocks are borrowed from broker for a certain price, and when stock drops in price, buy it back to close transaction which then effectively returns stock to broker at lower price. The difference in price is the profit kept.

So long and short are the two ways to make money.  

How much to start off with

Start with a small amount like $3000 or better yet start with just paper trading. Paper trading is when you use fake money to test out trading. Tradingview.com allows paper trading and so does Webull App.

Use this link to download Webull. https://act.webull.com/i/Fkei4pggypZZ

Which broker to use

Broker is the company that will facilitate the trade. Trading also cost money but recently companies have emerged with zero commission based trading. Two such companies are Robinhood and Webull. The problem with Robinhood, they don’t allow selling short on stock. So the better broker to use when starting out is Webull. Webull allows shorting of stocks which is great and another advantage of Webull is they offer 4X margin leverage. This means they give you 4 times the amount of cash you have to day trade.

For example, if you had $2000 in your broker account with Webull, potentially you can buy stocks worth up to $8000 to day trade with. Day trade definition is to buy and sell the same stock on the very same day which is the catch or risky situation here. So the risk is that if you made the wrong bet, meaning you went long and the price of stock goes low, at the end of the market day which is 1pm Pacific Time or 3pm Eastern time, you have to return that money you borrowed. So you would have to sell stocks at a loss in order to stay in compliance with the rules.

Link to download Webull.

It’s my referral link that give you and I free stocks. https://act.webull.com/i/Fkei4pggypZZ

Strategy to use

One of the better strategy to use for building account is day trading which is defined as buying and selling of the same stock on the same day. So find a stock that has a lot of volume for example my favorite stock to trade is AMD, and take a graphic tool like tradingview.com and learn to see if there is any REPEATABLE pattern that the stock exhibits on a daily basis. Then place your trade on this pattern.

For example if the stock usually spikes up when the market opens and then goes down, then one can wait for it to finish is high spike and short the stock and cash out when it reaches its low point. Or wait for it to reach its low point and enter long and sell when it reaches it high point. Then just repeat this process over and over.

Key notes: If account is less than 25 000, then Federal law in USA only allows 3 day trades per 5 trading days. One way to have more day trades is to open two accounts and that gives a total of 6 day trade slots. Slick ay? 😛

Which stocks to choose

Don’t choose penny stocks (stocks under $1). They are very very risky and you can lose all of your account in a very short time. Choose a company that has at least 10 billion market cap (google market cap if not familiar) as this companies have a very low chance of going broke any time soon. And then choose one of them that has very large trading volume. This way it allows to sell and buy stocks with ease. If there isn’t much trading volume, then it would be hard to buy and sell as there are less people to do transaction with.

Risk Management

Part of trading strategy is risk management (stop loss). This means simply is to cut loss when it isn’t that great. For example if you buy a stock long and instead of going up, it starts to go down, decide for yourself at which point does the stock go down for you to just cash out (cut loss). This is critical as if you don’t have a stop loss, then you will incur great losses. Remember that that little loss you cut, can be made again the next time you enter a trade. But it would take a long time to recover from bigger losses. Stop loss is part of the game so make sure to have one as not all trade are guaranteed to be winners. The idea is to win more and loose a few times as possible.      

Which tools to use

In order to day trade, the stock needs to be watched closely so a good charting tool is required. One such charting tool is tradingview.com.

Go to https://www.tradingview.com/ and click on chart and type in the stock symbol. Then click on 1 day and then one can see how the stock is performing. Will go over this later as it’s topic for another writing.

The tool is free but be warned that it is delayed by 15 min or so. Or was it 5 min? That is a long time for someone who is day trading. So a paid account will give live stats.

Psychology of losing

Because of losing, and especially with bigger losses, it can be followed by irrational behavior, like placing even more riskier trade to recover the loose. This could then lead to even more loss. So best is to cut the loss to a minimum from the beginning as to not reach this point anyways.

The rest

Will expand more on this article later as this is just the starting point. Just google the rest of the information that is lacking as there are tonnes of information out there. This serves only as a launching guide.

Also watch youtube video by Steven Dux who has made a fortune and has really really good ideas and tips.