How to trade in the stock market. A quick (incomplete) guide.
“Start where you are. Use what you have. Do what you can”
-Arthur Ashe
Enough about me, let’s get down to business. Today I want to talk about how one would even begin with the stock market. This beast can be very intimidating and I fully understand if you really don’t think you’re cut out for it. I get it, it takes time and you may not have access to tools like Fidelity’s ActiveTrader Pro. Just humor me for the next 2 minutes of your life and maybe I can change your mind!
I’ve been waiting for you to make the jump into the world of the stock market. Whether it be you just desire to know more about your 401K, IRA, or you want to dip your toes in the water and trade some yourself, you’ve come to the right place. The first thing we’ll start with is a simple way to enter the market today in five easy steps. This will not be recommendations on specific stocks, ETFs or Index funds, and I am not a professional of any financial institution. I also know there are more comprehensive articles on this subject and it is not necessarily my goal to compete with them.
If I were in your position I would not want to spend a long time reading, so hopefully I can at least succeed at that. Feel free to press play on the Spotify playlist on the right. I always prefer a little music when I’m reading stuff like this. #letsgettoasty
This is science, not fiction 👽
So here you are trying to get rich in the real world and you have some money saved up in a retirement account or mutual fund. Cool story bro, but it’s time to get serious.
- Asses your current financial situation
- Create an account at a low cost broker/dealer
- Look into the type of company you like the most (i.e. tech, natural gas, medical, etc)
- Found a company that
tickles your picklefloats your boat? Good, keep searching. Compare it to similar stocks and read the bio. No need for calculations you don’t understand right now. - Prove to yourself why this stock will make you money. This is what we call “Due Diligence” and it’ll be worth it. I promise.
Step 1: Do you even have money?
Lesbionest, if it didn’t take money to trade stocks there wouldn’t be a stock market. But it doesn’t take as much as most people might think. These days there are several ways to trade without even having $100 in your checking account. So, for all aspiring writers, musicians, or freelancers, I got you. But you do need to be smart about it, and please don’t actually invest unless you can still pay your monthly bills, but that’s a whole other can of worms and it frankly is not why I’m here. So…on to the next
Step 2: Create your first broker account
Honestly, this could have been step 1, but I had to make sure the reader is not financially unstable before they start trading. Trust me, not every decision I’ve made has been smart in the market, but the point remains don’t break yourself financially.
There are several ways to invest with new apps coming out constantly giving you the ability to trade low-cost or even commission free. I mean…someones gotta make the money right?
Disclaimer; skip this paragraph if you don’t care how a broker makes money from you in the stock market. The fact is, a broker gets paid when you have un-traded cash in your account simply because of accrued interest on your money. The other form of revenue for these companies is from fractions of pennies being paid to them by the market for trading in the first place. So let’s say you go check out Square (SQ) and it rocks your socks. When you buy a share of Square from the NYSE the electronic trading platform that your broker uses (like Citadel Securities LLC) pays your broker. And this is where we get off the boring bus and back on the ca$h money train.
Rabbit trail over, go on.
So the choice really is up to you. I just wanted you to know that some companies may seem too good to be true, but in fact, they’re legit. The obvious broker that comes to mind is Robinhood. Just search online for trading platforms and you’ll be swarmed with different places like TD Ameritrade, ETrade, Fidelity, Motifinvesting, and more. I personally use Robinhood, Fidelity and Motifinvesting. I do not make money by telling you that. Actually, I don’t really make money from any of this so if you feel like throwing a dog a bone, I’m the dog and the bone should be money.
Now that you created an account and signed your life away entered your bank information, you can deposit funds into it in order to start trading. This is where Robinhood is winning; there is not a minimum deposit in order to open an account. The reason this is great for new investors is because it allows you to get familiar with the layout and build your “watch list” of different stocks before you ever even have money in it. You’ll be doing some research, so this makes it a lot easier to do that before you pull the trigger on a beautiful stock. Think of this as window shopping.
Step 3: Take me to dinner first!
This is where most investors get left behind. It’s where the leaders and the followers take separate paths. Don’t be a follower, be a do-er (see “Pain and Gain” for more A+ inspiration). Remember being a freshman in college or even high school and walking in on your first day without knowing a single person and being the small fish in a big pond? Well that’s you right now. But if you can block out all the teenager drama and wannabe activists and really focus, you’ll make a decent grade I promise. Just don’t get too caught up in your celebrations and always….always wear protection.
What kind of companies are you interested in? If you’re not interested at all than I’m not really sure how you got this far in my article tbh…
Are you interested in the big boys like Apple, Google, Microsoft, and Facebook?
Or are you more of a blue-collar guy that likes the oil industry and companies that actually work for a living?
This is completely up to you, because the way I see it, there is always a great stock waiting for someone like you to come along and invest.
Shop the price
Once you’ve chosen your sector (the category that your stocks will fall into) then you can begin to get a little deeper. What are the share prices of the stocks you want? They may have quite a big range like in the technology sector due to the shear amount of companies that exist there. If it were me, I’d stay away from stocks under $5 due to their volatility (likelihood to move up/down quickly). Next is what do you want to accomplish with this stock purchase? Are you looking to make as much of a return as possible with high risk? Or is it ok if you just simply beat the stock market by a few percent? Create three bullet points for the reason you want to buy a stock in the first place.
Note: it’s not a good idea to create an entire portfolio off of this one sector you’ve chosen, this is strictly to get started. I will write about diversification soon)
Step 4: WAIT. Don’t buy yet.
Are you one of those people that walks into the first dealership and buys a car right then and there? While that may work for you (wait no it doesn’t) it will not work here. Don’t be that guy…please. Before you decide to buy it, let’s keep looking. Look at similar stocks to the one you’ve found. By that I mean similar in price, because let’s face it, at this point you may not actually know what a market cap or EPS even means. Don’t worry, as you gain knowledge you will learn these things, but I firmly believe you can trade without a bachelors in accounting or earnings estimates.
Similarities?
What are the similarities in the stocks you’ve found? Since we’ve discovered you have no idea what you’re looking at, let’s look at something you will know. Go to the company profile and read it…like actually read it. What do they do? How do they make money doing it? Or do they even make money? I encourage you to read about the company as much as possible, but I also encourage you to be diligent in your time. There are a lot of people that are excited to get into the stock market only to get burnt out when they spend too much time researching companies. This is half the reason the average American doesn’t know what their 401K is invested in and don’t care to trade their own stocks. And tbh if I could make this article shorter I would have…but holy stuff, there’s a lot to cover.
So now you have an opinion about the stock based on facts instead of sex appeal…I mean the stock quote page. So the very last thing I want you to do is find the “earnings call transcript” produced by the company you’re interested in. Normally every company has one and this is the last piece of information you need to make an informed decision. Check this one out from ZenDesk.
Step 5: Now prove it
Bless your heart, you’ve grown up so fast. I really am proud of you. Now let’s create your presentation.
- Why is this a winner; is there a new product out? Do you believe their earnings are going to be good? Are they currently designing the next spaceship for Mars?
- How long will you own it; Your entrance and exit strats matter. Just this quarter? Or more long term like..”foreva eva”? Whatever you do, follow this guide line exactly. The company does not control the market when trade wars come out of nowhere. That doesn’t mean the company has changed their ideas and future. It’s still the same company.
- What is this stock worth to you; this falls in line with your entrance strat. More specifically if your stock’s price seems too high right now, wait for it to fall before you buy.
There’s always a stock to make you money
The last thing I’ll say is expanding on the second bullet point. You need to understand that even when China and the USA are having trade wars and the stock market as a whole is going down, you still have a chance. By following the fundamentals of a company you’re following their core values, not their charts or the politics. See the downturn as a buying opportunity, not a selling one. Leave your emotions out of it. Hope you enjoyed my post…if you didn’t then why’d ya read it.
This is investing science.
