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Stock Trading 101

Stock Trading 101

What can be better than a business where you commute down the hallway, work in your pajamas, never have to deal with employees, inventory or vendors, and an income that is what you want to make it?  Not much!  It’s the reason that I learned how to trade.  Being master of your own destiny and not having to rely on anyone else but myself is an empowering experience.  We live in exciting times where we can directly interact with the market with very low overhead and costs.  You can do this too!

There are many choices when it comes to trading in the markets, each with its pros and cons.  We’re going to talk about trading stocks.  Trading stocks is NOT the same as investing in stocks.  That’s the first thing to realize.  Most people think of stocks as investments.  Many of them do make good investments.  That’s not what we’re going to focus on here, though.  Trading is different.  Trading is taking advantage of shorter term price movement and profiting from those moves.

Before we discuss stock trading, we have to set up our business.  Here are the basics that will be needed:

  1. Modern computer (quad core, minimum).  Don’t skimp on your tools!  Penny-wise and pound-foolish is no way to begin.  Invest in something good that you can rely on for several years.
  2. Fast internet
  3. Good, low-cost broker.  There are many out there.  Choose the one that has a good reputation, low costs and robust options tools.  You may not start out trading options, but the more you learn about trading stocks, the more likely you will find your way to options trading.
  4. High end charting platform: some of the best brokers provide this to you; www.tradestation.com, and www.thinkorswim.com are two brokers that provide excellent charting.  www.Ninjatrader.com is an excellent charting platform that works with many different brokers.
  5. Effective Trade Strategies
  6. Education: you need to learn how to trade and what trades to take, and when.  Look for effective strategies that teach you everything you need to know, from nuts to bolts.  Premier Trader University not only teaches you everything you need to know about trading, but it also comes with effective trade strategies, both the PTU System and the Trend Jumper Trade Strategy are taught within the university.

There are two types of trading:

  1. Fundamental: this type of trading relies on the underlying information about the stock like company earnings, PE ratios, etc..  This is not the style that I personally prescribe to because I personally just don’t know enough to be able to be effective with this type of trading.  I prefer the second type of trading..
  2. Technical Analysis: this type of trading relies on charts and price action.  It is the belief of technical analysts that everything that you need to know about the stock (the fundamental information) is reduced down to the basic, pure price action.  The price is always trying to get where it needs to be and we take advantage of that fact by profiting from its movement using predictable price patterns.

There are three basic Styles of trading:

  • Daytrading: these are trades that are entered and then exited on the same day. A daytrade can last for 1 minute to many hours but it will always be finished by the end of the session.  There are restrictions posed on daytraders in regards to capital.  A daytrader must have at least $25,000 in his or her trade account.  If you have less, and you make more than 3 daytrades in any five day period, your account will be frozen and you’ll need to work things out with your broker.
  • Swingtrading: these trades last more than a day and can go for as long as 3 to 4 weeks in some cases.  Many are concluded in just a few days. This is a great way to go because you don’t have to worry about the daytrade limits.
  • Longer Term Position Trading: These are trades that take advantage of mega trends and can last from a month to a few years.

Swingtrading is probably the best choice for most people due to its flexibility.  Once you build your account up, you may decide to give daytrading a try.  Many stock charts are excellent for daytrading; AAPL, GOOG FB, SPY, DIA and QQQ to name just a few.  Long Term trading is good too but you tie up capital.  Still though, if you could get some money to work for you on a low maintenance long term trending stock, that can add a lot of support and stability to your overall trade results.

There is so much to learn about daytrading stocks but the biggest thing to remember is to keep it simple.  You don’t have to do too much or focus on too many things to be success.  An effective strategy and a handful of good trading stocks is all you need.  You don’t need to worry about the thousands of names to trade.  You can become wealthy just mastering one or a few stock charts.  Many have made their fortunes only trading AAPL (Apple Computers) and nothing else.  Also, you have to be smart with your risk.  Never risk more than 2% of your capital on any trade.  Always know where your entry, target and stop loss is.  These are common sense pieces of advice that you will learn with training.  Ultimately, you want to treat your trading as a business and operate as a business person.  This will help you make objective decisions that are geared towards making money as a trader.

To learn more about trading stocks and trading in general, as well as getting your hands on some very effective and proven strategies, check out www.PremierTraderUniversity.com.  To learn more about the Trend Jumper, visit, www.ptuTrendJumper.com.  For additional trader resources, visit www.NetPicks.com.