8 Easy Steps to Learn to Trade Stocks in 2019
Do you want to learn to trade stocks? Having a hard time knowing where to start? If you’re a new trader or you want to learn to trade stocks, the amount of information can be overwhelming. Let me give you eight actionable steps to calm your fears and put you on a path to success.
1. Learn the Basics
The first step to learn to trade stocks is to be able to read a stock chart. I’ve written an article on it titled How to Read a Stock Chart but there are many other videos, websites, and books available to help you. At a minimum, make sure you know the following stock terms:
- Volume – The number of shares traded in a given time period (1 minute, 10 minutes, 1 day, etc..)
- Float – The number of shares that are available to be traded
- Support – Historical price level where more traders are willing to buy shares
- Resistance – Historical price level where more traders are willing to sell shares
Here are some other terms used to describe trading ideas :
- Long (or going long) – Buying shares of a stock with a plan to sell at a higher price
- Short (or going short – Selling shares of a stock with a plan to buy them back at a lower price
- Points – Increase or decrease of the stock price in dollars. A two point trade means the stock move two dollars.
2. Set Realistic Expectations
One of the BIGGEST problems new traders face is the desire to get rich quick. Remember, “If it looks to go to be true, it probably is.” Now, don’t get me wrong, there are people making serious money every day in the stock market but they are successful because they worked hard and figured out a strategy that works for them. The process does not happen overnight and you’d be hard-pressed to find a successful trader who never struggled, who never fought to control their emotions, who picked it up in a week and never looked back.
I’ve compiled a list of successful and struggling traders, that have shared their stories. Read through them, see how each trader got started, what challenged them, and how they persevered. What is a realistic expectation for a new trader? I’ve written an article titled How to Make Money Day Trading.
3. Find A Stock Trading Mentor Or Community
If your reading this article its because you want to learn to trade stocks and make money. Paying someone else to teach you costs money. Therefore, why pay someone $500, $2k, or more if I could be using that money to trade? It’s this simple, either the market will teach you painful costly lessons, or you will pay someone to teach you about their painful costly lessons…for much less.
How do you find a mentor? Join Twitter and sign up for a service. There are more people selling trading strategies and chatroom services than ever before but you can get a feel for the strategies and services they are selling by following them on Twitter. Follow one or two traders on twitter and then start following who they are following. But what types of traders should you follow? Find traders who share their mindset and process. If someone tells you when they bought when they sold, and how much money they made that does not help me. I want to know why you took the trade and why you exited the trade.
If you need somewhere to start, follow @psk2329. If you want more information about other services, I have written an article titled Find the Best Stock Trading Course for ME.
4. Find Your Winning Trading Strategies
Unfortunately, this is the first step most people take when they decide to learn to trade stocks. New traders want to find a silver bullet. They think, “Just tell me when to buy and when to sell. All I need is a winning pattern!” For example, if the stock goes from A to B, then B to C, and then C to D, I recognize the pattern, and I buy and sell at the correct spots…I win every time! WRONG! The problem with trading patterns is that you start thinking that all stocks follow the same patterns every time the pattern forms.
Instead, evaluate each trade for what it is, ‘a’ trade. There may be similarities and common circumstances but no two trades are the same. Here is an article I wrote titled The Problem with Trading Patterns. So how do you find a winning strategy? Practice and Journaling. The only way to determine which strategy or strategies work for you is to practice and journal your trades.
If you’re interested in paper trading, I recommend creating an account with TD Ameritrade and then download their software called ThinkOrSwim. You can log in and paper trade with live market data.
For journaling your trades, I recommend Tradervue.com and StockTrader.com. If you’re interested in a custom trading journal and would like to submit ideas, we are developing our own trading journal platform for RetailDayTrader.com users.
5. Become A Risk Management Expert
How much are you willing to risk on each trade? All traders have had BIG losses, its part of the game, but with proper risk management, you can control the losses and not let them take you out of the game. Risk management is “the technique or profession of assessing, minimizing, and preventing accidental loss to a business, as through the use of insurance, safety measures, etc.” You have to learn how to manage risk on each trade.
One of the first steps in any solid trading plan is to determine where you are going to exit either to take profit or a loss. Many traders say “I have mental stops” and that is fine for someone with experience but in my opinion, new traders should not have mental stops. If you are just starting to trade or thinking of trading, you have to have the disciple to take losses. If you want to read more, I highly recommend this article from Investopedia.
I’ve also created a Risk to Reward Calculator that was inspired by Spartan Trading.
6. Save Money to Trade With Confidence
One of the first questions most people interested in trading ask is “How much money do I need to trade stocks?” This is a complicated question because it depends a lot on your expectations, what your winning strategy is, and what your risk management tolerance is. In the United States, there is a law that requires you to have $25,000 in your account to make more than three day trades in one week. It’s called the Pattern Day Trader (PDT) Rule and here is an article about it by the SEC.
Most online brokers require you to have at least $10,000 just to open an account and you should ideally have $30,000 or more to be day trading. But if you are learning how to day trade, you have to start trading! Take $500, open an offshore account to get around the PDT rule, and plan to lose all of that money. You have to learn the process before you start making money.
7. Select A Stock Broker That Fits Your Strategy
Selecting the right broker depends a lot on your account size and how many shares you’re buying or selling on each trade. If you are a new trader, you have to start small. I recommend 10-50 shares per trade depending on the price of the stock your trading. The goal is for you to lose the least amount of money possible while you learn to trade. By taking a small share size, you eliminate emotions, and you will take smaller losses. That means that you can take more losing trades while learning.
Many brokers charge a flat fee per trade ($5/trade), others charge per share traded ($0.005/share). In this example, you would have to trade 1000 shares at $0.005/share to spend $5. If you are only trading 10-50 shares it’s better to find a broker who charges per share than per trade. If you want commission free trading you can open an account at Robinhood.
8. Never Give Up, Never, Never Give Up
Statistics say that only 10% of traders make it. 90% fail after attempting to trade stocks. How can you become part of the 10%? Never give up! Most new traders will blow up one, two, or even three accounts before they start to see consistency in their trading. If you start this journey and learn to trade stocks, it will be one of the hardest things you ever do and you will fail too.
You will take a big loss and most likely blow up a trading account. But never give up. Some traders figure it out in a year, some take five years but they never gave up. If you stay in the game, never stop learning, never stop fighting, you will WIN!