There is a curve when you’re learning how to start trading stocks, but with a few simple guidelines, you can start making money right away.
There is some debate among professional brokers about teaching people how to start trading stocks. Some will tell you your best bet is to hand your money over to an investment professional and let them do their job. Others, like us, believe anyone can learn to invest on their own if they have the desire. Some professionals would argue the only way a beginner can invest without taking a considerable risk is to go with a robo-advisor and automatic investing.
The thing is, any one of these could be the right answer. It all depends on your goals and your personality. For that matter, you can even combine any or all of these approaches. In other words, if you want to invest, there’s a way for you to do it.
Learning how to trade stocks, however, is another issue. And there really are some right ways and wrong ways to do it. Unfortunately, choosing the wrong way could be an expensive and unpleasant experience.
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How to start trading stocks without making a big expensive mistake
First, let’s talk about investing. Before you can learn how to start trading stocks, you have to pick the right investing approach. Most robo-advisors won’t let you trade stocks. Instead, you choose from a few different pre-set systems, and everything else is done for you. You can read more about some of those on our rundown of beginner investment apps.
That leaves you with investing through a broker orinvesting on your own. While a broker certainly has a place in the world for investors, you’ll most likely get charged a fee or commission every time you trade stocks through them. So if you want to trade stocks, the most realistic approach is to invest on your own.
There are plenty of ways to do this. Set up an account with a company like T.D. Ameritrade or Fidelity or something similar. They all have their own unique offerings, but many of them don’t require a very high balance, and almost all of them offer a wide variety of commission-free trades.
Once you set up your account, you can look through hundreds and hundreds of stocks, ETFs, REITs, and other investment vehicles. Most of them trade just like stocks, so for our purposes here, we’re including them. When your account is funded, you can pretty much buy and sell stocks to your heart’s content. But before you do that...
Patience is Your Friend
It’s one thing to learn how to start trading stocks. It’s another thing altogether to do it with a focused strategy that won’t leave you destitute. Jumping in and out of stocks is an almost guaranteed way to lose money. Trying to catch that hot IPO on its way up is an almost guaranteed way to lose money. Dumping your cash into the latest meme stock is an almost guaranteed way to lose money. And yes, there are some exceptions to all of these, but as a rule, these are money-losing approaches.
Look, we know that buying and selling stocks is exciting. When you first learn how to start trading stocks, it’s easy to get wrapped up in the thrill of the chase. But let’s move for a moment to the highway and changing lanes in traffic.
If we think about buying and selling stocks as they move up and down in price, that is, in some ways, equivalent to continually changing lanes in traffic. Just like we’re trying to buy low and sell high, we’re trying to get into the fastest lane and move around all those slow cars. What you might find interesting, however, is that all that lane-changing doesn’t work. A few studies have pointed out that weaving in and out of traffic makes relatively little difference in how fast you reach your destination.
To equate that to stocks, if you’re constantly buying and selling so you can boost your profits, the reality is that you probably aren’t making much headway. Here’s the catch, though. Moving back and forth between lanes in traffic significantly increases your risk of an accident. Similarly, moving in and out of stocks frequently increases the chance that you will lose money.
Therefore, as you’re learning how to start trading stocks, patience is key. Have at least two or three hard-and-fast criteria for stock selection, such as staying with stocks priced north of 10 and companies with growing sales and earnings. That alone will keep you out of many junk stocks. Then give those stocks time to work their magic.
Of course, that doesn’t mean you should hold onto a losing stock. Nor does this mean you can’t buy stocks that are going up - you should! If you want some help navigating the market, be sure to browse our website, sign up for our daily emails, or explore our premium advisories, where we give you detailed advice on investing to meet your goals.
What advice would you give to someone learning how to trade stocks?