So, you want to start trading stocks but you have no clue how.
Reasons You want to Start Trading Stocks
First, why do you want to start trading stocks?
- Your relative, friend or co-worker says you need to invest in Company XYZ
- You want to retire
- Your company has a 401(k), 403(a) or 403(b) and you have no clue what to do
- You want to learn how to trade stocks and make money
- You hear everyone talk about stock trading, so you feel peer pressured to learn
- Everyone else is doing it, so you feel you need too
Whatever the reason – don’t worry – trading stocks is simple.
I was just like you – confused, apprehensive, and worried I would lose all my money. But, if you follow a simple formula, you can mitigate risk and reap the rewards of the stock market.
Once your fears are put to rest, you will get the stock trading bug and wonder why you didn’t start trading stocks sooner.
Let’s get started! I compiled a 5 step simple-stupid guide on how to start trading stocks.
1. Make a Plan and Stick to it
Investing can be emotional, particularly for those new to the game. Losing money doesn’t feel good, and it’s easy to panic and pull out at the wrong time. It’s also easy to get swept up in the excitement of what feels like a winning stock.
Trust me, when the stock trading bug bites you – it can be hard to react rationally.
That’s why we need to answer the question: Why do I want to start trading stocks?
Again, it doesn’t matter why particularly – but it will determine what level of risk your willing to take.
If you’re investing to get your toes wet or for retirement – a set-it-and-forget-it type of strategy might be best. Buying proven, long-term growth stocks and letting your wealth accumulate without worry about the ups-and-downs of the stock market.
If you want to day trade, which is very risky – it’s important you understand the various indicators and apply strategies to mitigate risk because the ups-and-downs of the stock market will worry you.
Again, it’s important to plan how much you want to invest at what price, and determine how far you’re willing to let a stock fall before you get out.
Whatever your reason is for trading stocks, make a plan and stick to it.
2. Get Educated
Now that you know why your trading stocks, learn everything you can about investing, trading stocks and the markets.
Because mistakes can be costly.
There are a lot of FREE educational resources that teach you how to start trading stocks.
- Halfbare – Investing Articles
- Books – Best 11 Books on Investing 2019
- Udemy – Basic Investing Concepts (FREE)
- MIT Open Courseware – Investments
- Yale – Financial Markets
Also, stock brokers offer their own educational centers (i.e. M1 Finance). In addition, some brokers, like TD Ameritrade’s Think or Swim platform, offers their clients paper trading, a simulation of trading which is a great way to practice without real money or risk involved.
You don’t jump into a pool without learning how to swim, the same applies to stock trading.
3. Pick an Online Broker
Now that you know why you’re stock trading and have educated yourself – time to pick an online broker.
This can be a daunting task. There are plenty of articles ranking the best.
I will make it stupid-simple.
Robinhood is the BEST for buying single stocks, day trading, or options. It is one of the easiest platforms to use and is the best platform for beginners trading stocks for the first time. If you use my referral link, we both receive a FREE stock.
M1 Finance is the BEST for retirement accounts (Roth IRA, 401k), dividend reinvestments (DRIPS), and buying multiple stocks. Just like Robinhood, it is one of the easiest platforms to use and is the best platform for beginners trading stocks for the first time. If you use my referral link, we both receive FREE $10.
4. Start Researching Stocks
Now that your account is open with Robinhood or M1 Finance – you’re ready to start investing and trading stocks!
What’s next? Picking stocks which usually is the most difficult for new stock traders.
Luckily, you already educated yourself and have a plan. Phew!
Stock traders start by doing a thorough analysis of a company, looking at public information – including earnings reports, financial filings, and SEC reports – as well as outside research reports from professional analysts.
A majority of this will be provided by your broker, along with recent company news and risk ratings (as seen below).
Start slowly, picking one or two stocks and investing a set amount of money that you are prepared to lose. As you become more comfortable trading stocks, you can inject more capital.
5. Find a Mentor
Now that know why you’re trading, have a plan, educated yourself, picked an online broker, researched stocks and bought one or two stocks – it’s time to find a stock trading mentor!
Some people might be better off learning alone, but I am a big advocate of finding someone who has already achieved what you want and learning from them.
Don’t get this confused with a financial advisor! Find a community of people or someone you know personally who has your best interests in mind.
A community of people could be found online – Facebook groups, Investing Forums, local Investing groups, etc. Be mindful though that you don’t get suckered into a scam or a pump and dump scheme. If you followed the above steps and educated yourself, you will be able to see through the BS easily.
A stock trading mentor is important because you can discuss various stocks, bounce trade ideas off each other, and learn from each other.
Conclusion – How to Start Trading Stocks
Trading stocks is easy, but remember, only trade what you’re willing to lose.
You don’t need to engage in stock trading to accumulate a nest egg. The best way to build wealth is by saving early and often, then investing that money in a diversified portfolio. But if you feel the need to take a swing at trading, take it slow and be aware of the potential risks.
Make sure you have a solid financial foundation before you start trading stocks and stick to these 5 stupid-simple steps when you make the leap!
Good luck and have fun!