When you talk about trading, most people will ask you about the stocks you trade. Trading stocks is the most recognized form of trading and one that people look to when they engage in a trading business.
When you purchase a stock, you actually become an owner of a small piece of the company whose stock you have purchased and you are called a shareholder.
Learning stock trading online does not have to be complicated however there are a few topics you should be familiar with.
What Do You Mean By Shares?
A share can be described as part ownership of a company. When a company goes public, this means they have offered the general public to buy part ownership in the company. You purchase these shares through an online broker such as the ones listed in this article about stock trading education.
Pattern Day Trader
Regulations came into effect that limited the amount of transactions an individual trader can make. When you are learning stock trading online, you must be familiar with requirements that will direct you to either day trade stocks or hold stocks as a position trade. The SEC made these regulations to reflect the risk associated with day trading stocks.
The rule states that if you intend to execute 4 or more day trades in a 5 day period using a margin account, you must have a minimum account balance of $25000. The number of trades must be more than 6% of your entire trading activity during that five day period.
Buying On Margin
Margin is a loan your broker makes to you in return for a deposit from your trading account. While some do not use margin, those that do are able to purchase more stock in terms of dollars than they actually have in their trading account. This allows larger positions and larger profits. How much you must deposit for margin varies from broker to broker but be aware that there are risks inherent in trading with margin.
- The higher amount of stock you trade, the more money you may lose
- You will pay interest on the funds borrowed
- If you drop below the minimum required equity in your account, you will face a margin call
Is This You?
Even though stock trading online is open to anybody with the capital to do so, does this mean they are suited for it? The truth is that the majority of people, who set out to trade, are really not equipped to do anything but lose money.
- Impulsive and impatient?
- Looking to make that “big” trade that will put you on financial easy street?
- Easily frustrated when you are proven to be wrong?
If you answered yes, you have a lot of work to do before you should consider going live in the market with real money. You will hear that your mind is your greatest enemy in trading and unless you get a handle on negative behaviors and attitudes, your chance of success in minimal at best.
“I’m only rich because I know when I’m wrong…I basically survived by recognizing mistakes.” -George Soros
There are a few fundamental differences between stock trading and other forms of trading and some of those we just covered. In the end though, trading is trading and learning stock trading online is really no different than learning to trade other types of markets.
Stock Trading Styles
Analysis of the fundamentals of each company you are interested in is one route you can go when stock trading. Looking over the financials of the company, you can learn a lot about the health and the prospects of the organization. This will include going through items such as the balance sheets which outlines assets and liabilities. You would also pay close attention to the Profit and Loss statements which will show you if the company is worth your capital risk.
Learning to trade stocks with this type of information is quite time consuming. It is not something you would do if you were day trading a particular stock. If you were a heavily capitalized investor, this is probably the route you would take.
The most popular form of stock trading is using various technical analysis methods which include everything from support and resistance to various indicators.
Before covering the most popular technical analysis methods you may be exposed to when learning to stock trade online, let’s look at the most widely used indicator used by traders.
How Popular Is The Stock?
Every charting package comes with an indicator that shows how many shares are being traded through a certain amount of time. As you can see below, it is in the form of a histogram called volume which makes it very easy to identify the interest in a stock.
You want to see some healthy volume in the stock you are trading because when you choose to sell, you need someone to buy. There is not an unlimited amount of counter parties to trades at every price point. Volume will readily show when the particular stock has enough interest to make it a worthy candidate to trade.
Any stock trading education will most likely cover the various ways you can use volume to make trading decisions.
Every charting package will come with a variety of indicators that you may use to base trading decisions on. They can be grouped into the following categories:
- Oscillators – Wave through a range and show overbought and oversold conditions. Most popular are the Stochastic and the CCI
- Volatility indicators – Measure the strength of price moves and also used with oversold and overbought conditions. These would include the ATR and Bollinger Bands
- Trend indicators – These are designed to help you determine if there is a trend present. Moving averages and MACD are two of the popular indicators
Why use indicators?
Indicators can tell you at a glance if the market meets conditions you have set out in a trade plan that a trade is possible. Indicators help take out your own bias of the market and helps to keep your trading as mechanical as possible with as little discretionary intervention as possible.
I have placed some of the popular indicators on the same chart as the volume chart above. Any stock trading education course will cover how to use these indicators in the context of a trade plan. Once you have become familiar with their usage, you may find it easy to build your own trading method for stocks keeping in mind proper capital exposure rules.
The moving average is used either of two ways in a stock trading method to determine which direction to trade.
- Note the slope of the moving average and only trade in the direction of the slope
- Note if price is above or below the moving average. Only initiate trades long when price is above the average and shorts if below the average.
The stochastic can alert you to possible reversals if in the oversold or overbought areas. I highlighted two areas and note the following:
- When stochastic was oversold, price found a bottom and started to trend upwards
- Also note that the stochastic had a cross of the two lines. This is often used to indicate a trade entry in some trading methods
- When the stochastic was in the overbought area at the second arrow, price started to decline.
- Also note the cross of the two lines which can indicate a trade entry to the short side.
Learning Stock Trading Online
It can be quite daunting for someone not familiar with trading to be faced with such information. Many people wanting to learn to trade do so by seeking out trading education websites. Trading is a skill that can empower you to paving your own direction in life. Many people actually become full time traders and leave the security of their day job to work from home.
One way to lessen the learning curve is to enlist the aid of a trading mentor or company that specializes in training traders. The benefits far outweigh the downside:
- Learn from mistakes they made
- Understand the role trading psychology had in their success
- Bounce trade idea off your mentor for feedback
- Benefit of possibly having a proven trading method or system
- Have someone to keep on reminding you of successful trading practices until they are second nature
Paul Clitheroe said “Invest in yourself. Your career is the engine of your wealth”. Proper education to learn stock trading is not a $99 E-Book. It will require a capital outlay that some may deem inappropriate however Clitheroe is correct….think of it as an investment.
Learning stock trading online allows you to learn from the comfort of your own home. You are able to set your own hours for study which is important for those with a full time job. Most educational companies will offer video coaching as well as live webinars which you can view at your leisure. Your stock trading career can be the “engine of your wealth” if you learn proper trading practices from the onset.