Everybody has to start somewhere. This old saying applies to stock trading and investing. Are you a stock market novice? One way to look at stocks for beginners is not to consider yourself a beginner.
This is because you can be your best research director, money manager, and market expert when you learn how to trade stocks. Is it the right time to trade stocks? No matter what the market does, it’s a good idea to learn about the stock market and any potential trading or investing opportunities.
Trading education coaches recommend that you “read the books and learn as much as possible.” These are five tips for those who want to learn how to get in on stocks.
1. Your personal brand knowledge is a great way to get started
Warren Buffett’s advice is to “Never invest money in a company you don’t understand.” Consider the companies that offer the products or services you and your family use daily.
How did you get here? What restaurant have you been to recently? What entertainment did you listen to or watch over the weekend? It is a great way to get started on your trading or investing thesis by asking basic questions.
Brands and companies that are easily identifiable at ground level are likely to be well-known by the stock market. You could make some money from them, as well as receive dividends.
It’s impossible to predict the future and companies have the right to stop paying dividends.
2. Learn the basics
A stock purchase gives you partial ownership and a share of the company’s earnings. Market beginners need to understand basic metrics like revenue and basic earnings per share (EPS), which are rough measures of a company’s profit that can be allocated for one share of its stock. If you have a diverse portfolio, you can use the Prillionaires wealth tracker to keep track of all your assets.
Publicly traded companies usually report quarterly earnings and financial information, including EPS. It’s a smart idea to review the company’s earnings history and compare it to analyst expectations for any stock that you are considering. Is the company able to beat or fall short of its EPS forecasts in the past? Check the calendar to find out when the company will report quarterly results.
Earnings conference calls are another great source of insight and perspective. They are held right after companies report quarterly results. Listening in can give you insight into the CEO’s thoughts and answer the questions investors and analysts are asking.
You may also feel more like an “investor” than someone buying stock shares.
3. To spot trends, use technical indicators
Chart patterns, trading volume statistics, and other technical indicators are used by many market professionals to make buying and selling decisions. These professionals might be looking at “momentum”, which is how fast or slow a price moves up or down or trying to spot price trends before they reverse. This is a well-known market maxim: “The trend will be your friend.”
Stock market beginners can use similar techniques to determine the direction of a stock’s movement and its potential future direction. A handy tool for identifying trends is the combination of the 30-day simple movement average (a stock’s average closing prices over the past 30 days) and the 10-day exponential move average (which gives more weight to more recent data).
Technical traders often consider a strong trend a stock that is over its 30-day simple moving and 10-day exponential moving averages.
4. Always do the math
Sound investing or a trading strategy is based on numbers. This means weighing the risks you are taking against potential rewards, calculating what is “expensive” and understanding other numbers-based assessments.
The math used to trade or invest is similar to the due diligence that you would do when purchasing a house or any other real estate transaction. Some investors believe that if you don’t do the math you aren’t really investing.
The price-to-earnings ratio (P/E), which is widely used to gauge whether a stock’s value is too high or low, is one place to start. The P/E ratio, also known as P/E multiples or price-to-earnings ratio, measures how much investors will pay for a dollar of a company’s profits. The P/E ratio of a stock is the most important when it is compared to other peers in its industry and broad market benchmarks like the S&P 500.
5. Invest in your goals
Markets are fundamentally managed by humans. This means that anxiety, fear, and exuberance all play a part in markets. Markets can move up and down, sideways, or even in the opposite direction, sometimes without any apparent reason. Beginners might do well to recognize what they cannot control and to try to avoid potentially irrational and emotion-driven trading decisions.
Trading is often compared to dating by some professionals. It takes them less time to audition candidates for a portfolio. Investing is, therefore, more like a marriage. It involves long-term decisions that can take six months or more, and are based on criteria that are important to each trader. You are looking for a partner or a long-term trend.