How to Get Started with Stock Trading?

A Beginner’s Guide with Tips to Survive and Make Profits

Stock trading refers to actively buying and selling stocks to make profits in the short term. Trading prefers short-term profits over long-term gains through investing. Essentially, you’ll be either a stock trader or investor.

Stock Trading requires active management of stocks or other financial securities to make profits. Online brokers and trading platforms have made it easier to start trading from the comfort of your home.

We have curated a list of top online brokers for you to compare before you begin stock trading. This guide will also help you get things started with stock trading and improve on as you go through the learning curve.

What is Stock Trading?

Stock trading refers to buying and selling of stocks frequently to make profits. Traders play an active strategy as compared to investors. Trading strategies are aimed at making profits in the short-term; in days, weeks, or months at most.

Stock trading requires in-depth knowledge and skills. You’ll need to learn about the fundamentals of stock trading. You should also learn about how to use fundamental and technical analysis for trading.

What Type Of Stock Trader Do You Want To Be?

Before you begin, assess your trading style and needs. Decide on what type of trader do you want to be? Broadly speaking you’ll be either an investor, for long-term gains, or a trader, for short-term profiting.

Day Trading is an aggressive trading strategy that requires buying, selling, and closing trades in a single trading day. Day traders open and close multiple trades in a single trading day. They rely on tiny profits, often a fraction of decimal, and try to multiply the gains with multiple trades.

Active Trading is also a short-term trading strategy but with less frequent trades as compared to day trading. Active traders make monthly trade targets and pursue the strategy by opening and closing different trades to gain handsome profits.

Your trading style will largely depend on your risk profile. You'll need to assess your risk appetite and risk tolerance. It means how much you can invest in trading and how much of it can you bear in losses.

Where to Begin with Stock Trading?

Assessing your risk profile will lead you to decide your trading style. That in turn will lead you to choose the trading strategy and securities to choose from. For instance, if you are a risk-averse person, you’d ideally begin with index funds or mutual funds.

Choose an Online Broker

You can trade stocks directly or with the help of an online broker. You can also use Robo-advisors to begin stock trading. Compare online brokers and choose a reputable one that matches your trading style. (More about it below)

Open a Trading Account

Open a trading account with the best online broker you chose. Try exploring trading tools and platforms with a demo account. Evaluate the margins and leverage offered by the broker. It’s a good time to compare different brokers with hands-on experience.

Build your Portfolio

Once you start stock trading, you should carefully build a diversified portfolio. If that sounds too difficult to handle at this stage, consider investing in index funds or ETFs. The key here is to minimize the risk exposure early on.

Fully Utilize the Power of Order Types

You can place several trading orders to make profits as well as limit loss exposure. These orders are market order, limit loss, stop-loss, guaranteed stop-loss, etc.

As a beginner, it will be wise to use stop-loss and limit-loss orders. However, these orders limit your chances of profit-making too.

Diversification

If you invest in Index Funds, Mutual Funds, or ETFs, you’d need to worry less about diversification. These funds are naturally diversified and limit your loss exposure.
However, if you’re trading individual stocks, it’s pivotal to build diversification. For instance, choose stocks from different sectors, e.g., a Tech industry and a Construction industry, rather choosing two companies from the same industries.

Revise and Improve

You must stick to the plan and do not make changes hastily. However, it’s never a bad idea to set benchmarks with successful traders. You can revise and improve your trading strategies over time.

Let us now share some key steps in stock trading for you to succeed.

  • Read about the company’s performance not only the stock’s.
  • Choose stocks with higher liquidity and volatility.
  • Avoid investing in penny stocks in the beginning.
  • Go through the company financial statement and crunch the key ratios.
  • Analyze the qualitative perspective of a company’s performance, not just stock ratios.
  • Combine your quantitative and qualitative research into context.
  • Consider key metrics such as industry trends, competitive advantage, economic news, and market sentiments as well.

Choosing an Online Stock Broker

Choosing the right online broker and trading platform can immensely affect your returns. Thus, invest time to research the best online brokers available to you.

Online brokers offer different in-house and third-party trading platforms. They also come with different commission structures, interest rates, and account types. Many traders offer free trading with no commission.

If that sounds overwhelming to you, we have built a curated list of online brokers. You can find more about your favorite online broker here. You can also do a quick comparison of your favorite online brokers.

Research the Stocks Before Trading

Take your time to research stocks before trading. At the early stages, you can invest in ETFs or Index Funds to avoid any complications. However, if you’ve learned the basics, you may try investing in individual stocks.

Here are some key tips for you to research the best stocks.

  • Read about the company’s performance not only the stock’s.
  • Choose stocks with higher liquidity and volatility.
  • Avoid investing in penny stocks in the beginning.
  • Go through the company financial statement and crunch the key ratios.
  • Analyze the qualitative perspective of a company’s performance, not just stock ratios.
  • Combine your quantitative and qualitative research into context.
  • Consider key metrics such as industry trends, competitive advantage, economic news, and market sentiments as well.

Top Tips for Beginners in Stock Trading

As you grow in stock trading, you can devise different strategies. You can adapt to active trading or turn to more aggressive styles such as day trading, short-selling, scalping, hunting, etc.

However, some basic rules will help you succeed at any stage and with any type of trading strategy that you pursue.

  • Invest time to build a trading plan.
  • Learn about trading strategies, trading platforms, and financial assets as much as you can.
  • Set aside your investing budget, stick to the capital limits you want to invest.
  • Start small and gradually build your portfolio, trading doesn’t mean overnight success.
  • Fully utilize the power of technology, for instance, use Robo-Advisors if it suits your trading style.
  • Harness the power of technology, utilize fundamental and technical analysis, use charts, indicators, social trading, signals, and market news to your advantage.
  • Learn to use the trading order types correctly. Always use the stop-loss and limit-loss orders.
  • Timing the trade is of paramount importance in stock trading. You should master the art of entering and more importantly exiting a trade.
  • Never commit beyond your available capital, protecting your investment capital is important. Take risks as much as your risk tolerance allows.
  • Lastly, it’s best to stick to a plan with consistency. However, you’d sometimes need to revise the trading plan if and whenever needed.

Top Tips to Survive in Early Days

As we mentioned, not every trading plan is successful. Even if you follow a plan benchmarked against successful traders, you may fail. Several factors contribute to succeeding with stock trading.

Here are some key tips for you to survive in hard times.

  • Always invest time to build a trading plan, and stick to it unless inevitable to change it. 
  • Start small and never rush to earn more with less in the beginning.
  • Do not blindly follow the “hot tips” or plans meant for pro traders.
  • Set realistic goals by assessing your trading skills, available capital, and risk profile.
  • You need to invest time and money to earn with stock trading.
  • Avoid losses with limit-loss and stop-loss orders.
  • Learn to control emotions while building a trading plan.
  • Follow the rules of trading, for instance, diversification is of paramount importance for any trader.
  • Lastly, learn as much about stock markets as you can by following the mentors, successful traders, reading books, and credible news.

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