This is Steve, and he has some questions regarding stocks:
How do I actually invest in stocks? How does it work? I have heard many stories about people earning a lot from the stock market. How can I do the same? I know that you also lose, so how can I put my money into the right company? Isn’t the stock market just betting?
I want to help you. I will explain everything you need to know. From the start to the finish. All the basics you need to know. I will explain what you need to beware of. Different trading styles. Some safe strategies. And last but not least how you profit.
Stock Market Basics
To invest in a stock you need to buy shares. The shares are the value of the company. So If you buy one share, you own a small piece of the company. So when you sell the piece or the share you sell a small percent you own of the company. All the shares together are how much a company is worth if you sell it all.
Let us say that you want to invest $1000 into Apple, and one share from the company costs $100; then you could buy 10 shares of Apple.
So now you own a very small piece of Apple. The owner of Apple has millions of shares, but the public can buy the shares Apple sets as available. So if Apple has 10 billions of shares in the company, they can take 1 billion available for us. The 1 billion shares are our playground, there we buy and sells shares to each other. The reason Apple gives us a playground is to rais their capital.
Where does the money from the stock market come from? Profits come when someone is buying shares from you at a higher price than the price you initially bought the stocks at. So when you are buying 50 shares at $1 you have to spend $50 dollars, and if someone buys your shares at $2 dollars they have to spend $100 to buy it from you, which leaves you with $50 in profits.
Stock trading is all about being first to buy a good stock, before the crowd finds it. This is an analogy I love to use. Let us say you are laying on a beach, you’re relaxing and there is many other people on the beach. All of a sudden a rain cloud appears in the distance. Since you have spotted the cloud early, you swiftly pack your bag, and run to the car and start the ride home. After a few minutes it starts to rain and you are driving your car out from the beach without any traffic, but the people that were still on the beach, and didnt spot the cloud get stuck in the traffic of cars that all realized the weather change too late. The reason you left early was because you knew that the other people were going to leave too late and were going to get stuck when the rain started to come.
Since “Successful investing is anticipating the anticipations of others” we have many different strategies. This is a huge topic because not all can become the first one that is buying or selling. Someone need to lose. So if you want success in trading you need to learn from proven profitable traders. We have many different teachers but one I highly recommend is Cameron Fous
Cameron have studied the market every single day for a long time. Now he runs a huge trading site and teaches traders to succeed. Read my review here:Fous alerts review
This is rules and tips I have found very useful. When you trade always go into a stock with a plan. If your plan fails, cut losses and move on the next plan. The key in the stock market is not losing. So if you buy a stock with a small risk beside a huge possible upside and you minimize losses, you have a good chance of success. Never hold on to a stock when the plan fails. Try to lose only 1%-3%.
Buy stocks with good fundamentals. The fundamentals I have found profitable is:
- P/B: Under 1
- P/E: Under 15
- Return on Equity: positive (>0%)
- Debt/Equity: Under 0.5
- Current Ratio: Over 1.5
- Current Volume: Over 300k
When all these are checked and looks all good. I look into the company products. Check if it is something that is worth investing in. The product could be, improving lives, make days better for people, Basically a product that is amazing. I also check the company contracts in the past. Then I look into the technicals.
One of the most important things in trading is a brokerage account. You and I can’t just go into the market and buy or sell stocks. We need a brokerage account. The broker is the person that buy you into a stock and sell you out. But you choose when you want to buy and when you want to sell.
But you need to find the broker that fits the most for you. If you are into day trading you need a good scanner that finds the hottest stock. You need also to go short (earn money when the stock goes down). Because many brokers can have hard times to give shares to short. Many brokers can also have bad market data. They can have hard times trying to buy you into a stock and sell you out. It is important that the broker can easily buy you in and sell you out fast if not you have a huge disadvantage.
A huge part of a broker is the fees. You should find a stock that has good entries and low fees. Most of the time you get what you pay for. A high price broker has good tools and data. It is a reason that the broker is high priced.
Here are some brokers I recommend:
It is an International broker. A bit high priced but you get what you’re paying for. Very easy borrowing shares. Very good tools. Good entries. Small fees while trading. A good scanner that is on time. All the professional traders use this broker. I personally also use it.
Only in the USA. Not so high priced. Have good entries. Can have hard times borrow shares. Have pretty good tools.
It is an International broker. Very cheap but remember you get what you pay for. Can borrow shares. Not so good tools. Can have bad times with entries. Small fees. Basically, Suretrader is a very off and on the broker. Sometimes it is good, sometimes it very bad.
Researching a stock is a very big part of trading. Then it is important to have a good site. I recommend Finviz and yahoo finance. Finviz is a good site for scanning and looking at fundamentals. Yahoo finance is a good site for news. A very helpful tool on Yahoo Finance is that you can make your own portfolio and get the latest update about s stock.
Volume trap: If volume fades and disappears you will have the struggle to get yourself out of the stock. So be careful buying stocks that have little interest.
Hot stock picks: Many new traders is searching after “free alerts” or “stock picks”. They sign them self up on an email list on the site they founded. But what they really don’t know is that the site they are signed up is a scam and has multiple sites with thousands of people. So when they are alerting, the stock they have picked will go up higher with no reason. So after the stock is stopping sending out emails the stock will crash hard. They do this to profit themselves or save companies from bankruptcy that pays them a lot.
Trading machines: Many of the machines is scams. But we have some that are work but they are just scalps; going after 1%. You think you’re profiting but really don’t. In the end with fees and transitions, you are losing. “Have you ever heard about someone become a millionaire with a trading machine? I rest my case.”
Fees on small account: If you choose to buy and sell often with a small account the fees will eat up your account. Day traders are struggling the most on this part.