Call Us - (855) 788-7881 or (214) 865-6151
Email UsEmail Us Live ChatLive Chat

Stock Trading Education

What is stock trading?

Stock trading in its simplest form is the process of investing in a company with the goal of making money through that company increasing or decreasing in value. Whether you are a long term investor planning for retirement, or an active trader looking for consistent income, the stock market is the place to achieve your goals. When we buy shares of a company’s stock, we are betting on the value of those shares going up. We can also short the shares of the company, which is a bet on the value of a stock going down. Shorting a stock is the process of borrowing the shares of stock that you don’t own and selling them with the hopes of being able to buy them back at a cheaper price. While many people are familiar with buying stocks for the long term by holding them for years at a time, you can also place short term trades which are bets on the stock moving within a matter of days or weeks.

How do I pick the best stocks to trade?

A problem that many traders run into is knowing which stocks to trade. There are thousands of different stocks that you can trade each day. We like to narrow that list down to a small universe of stocks using some basic criteria.

  1. Trade the most liquid stocks – When we say look for the most liquid stocks we are talking about looking at the volume of shares traded each day. Trading a stock that has good volume means we have a better chance of getting in and out of a trade quickly and at good prices. Running a simple scan for the most actively traded names is a good place to start when trying to identify the best stocks to trade.
  2. Trade ETF’s (Exchange Traded Funds) – Traders are urged to diversify their portfolios, which is the process of spreading out their trading account across many different stocks. Traders can run into problems with this approach when they don’t have access to large account sizes. An alternative is to invest in an Exchange Traded Fund, which is the process of buying a group of stocks instead of a single company. For example, let’s say we wanted to buy a financial stock but couldn’t decide which name is best. We could instead look at a financial ETF that allows us to buy shares of a single product whose value comes from the performance of a whole group of financial stocks. This allows us to easily diversify our portfolio without taking the time to research each individual stock to determine which is best. It also allows us to make better use of a small trading account.
  3. Use charts to identify the best stocks – The change in a stock’s price can be shown on stock chart which can provide a visual of the changing value of the company. We can track the change in price based on different time frames. We can chart the price changes on different time frames like daily, weekly, monthly or yearly intervals. Active traders can also chart the intraday changes in price by looking at charts using intervals like the 5 minute, 15 minute or 60 minute. When charting the price movement of the stock, we are easily able to identify the stocks that like to swing back and forth. We want to trade the names that show good movement back and forth as they will provide the best opportunities to make money in the markets.
  4. Use a trading system – The days of investing in a company by looking at their earnings or the products they produce are in the distant past. Most traders in the markets today use trading systems that identify different price patterns on the charts. By looking for these repeatable price patterns, we are able to base our trading decisions off of the changes in a stock’s price. A trading system should produce exact entry and exit points telling you when to get in and when to get out using price patterns. It should also be designed so you are using good money management techniques. This means we are looking for our winning trades to be larger than our losing trades. It also means we are willing to admit when we are wrong by taking a loser so we can stay in the game without losing our entire account on one bad trade. Using a system like the Premier Trader University Active Swing Trader we are able to use a defined rule set to tell us when to buy and when to sell a stock. It will provide a road map that you can stay disciplined to over time which will help you become a profitable trader.

How do I place a trade?

❏     Use a discount broker – With the advances in technology we are able to place a trade without having to call up a broker. We can place trades from just about anywhere in the world using a computer or a smart phone. Using a discount online brokerage allows you to place a trade for a fraction of the cost because you aren’t using the broker for direction on which trades to take. You are making all of the decisions, which allows you to place a trade from an online brokerage account or even by logging into your smart phone app. Using an online discount brokerage account will also allow you to place trades without paying a large commission to your broker. Many discount brokers allow you to place trades for $10 or less which allows you to be as active as you want. Most provide some forms of margin trading.  Margin trading can be an excellent way to leverage your starting capital but also realize it does increase your risk.  Some examples of popular brokers that many traders use are:

  • TD Ameritrade
  • Trade Monster
  • Interactive Brokers
  • Tradestation
  • Charles Schwab
  • Etrade
  • Scottrade

❏     Selecting a broker – When looking for the right broker you need to keep a number of things in mind. First, you want to look at a number of different brokers and compare the commission costs. While this isn’t the only criteria we are looking for, we also want to make sure we aren’t paying more than we have to when placing a trade. You will also want to make sure they give you access to different platform types. For example, as an active trader I want to make sure I can place trades from both my computer and my smart phone. Being mobile is extremely important for traders today because markets can move so quickly. Having the ability to trade from a mobile application can be very useful for people that are busy with other jobs or commitments that have them on the road a lot. Finally, make sure you use a broker that offers good support. If you can’t call and contact your broker’s trade desk within a few minutes then they aren’t the right broker for you. Markets can move quickly and we need the ability to make trading decisions quickly without having to spend much time contacting a broker when technical issues pop up.

Keep in mind that when you’re trading in realtime being very confident in the mechanics of online trading is critical.  You don’t want a situation where trades are setting up, the market is moving quickly and you’re stumbling with the entry or exit because you haven’t mastered the mechanics of online trading.  Make sure you trade at a broker where you can practice trade to ensure you have the mechanics of trading in stone before risking your live money capital.

How do I get started?

❏     Learn To Trade Stocks From An Expert – Trying to learn how to trade on your own can turn into quite the process. You can shorten your learning curve by using a trading coach that has gone through all of the bumps in the road and who can prevent you from making all of the common mistakes that new traders make. Ideally, you would want to find an expert that uses a similar system as you so they can hold you accountable to the rules of the system. While working with a trading expert can cost some money to do, it is also well worth it in the long run if you want to start generating positive returns in the market quickly.  There are so many possible strategies out there that the mentor you choose is critical.  For example, there are well developed candlestick charting strategies.  But, how would you know if candlestick charting is going to satisfy your long term stock trading objectives?  Make sure whomever you choose to guide your stock trading education is an expert and has a proven strategy whether that’s in candlestick charting, indicator based trading, fundamental analysis or any of the other numerous potential approaches.