How to trade stocks for beginners

how to trade stocks for beginners in the stock market using common sense.

How you can be a good stock trader and make money

Trading stocks sounds scary, right? YEP!

Let me start by saying I am not here to sell you anything. I’m not here to sell you a book on how to trade stocks. I’m definitely not here to get you to join a secret stock club where they tip you off on the NEXT BIG STOCK DEAL for a monthly fee.

Wolf-Of-Wall-Street-Screenshot-768x431
THIS IS TOTAL BS!

Anyone wanting to charge you a monthly fee to follow their trading group should be ignored. How do you know how much money they really make from trading stocks? Remember that NO ONE can predict what will happen in the stock market! All you’re doing by joining this group is making some idiot richer for doing NOTHING!

My intention is to talk to you about common sense and the stock market and what it’s all about. From there you can can make your own decision on whether you would like to enter this world of “classy gambling.” That’s all stock trading really is.

WHAT IS A STOCK?

Stocks are investments in a business. When you own a stock, you own part of the company that stock came from. Stocks are also referred to as “equity,” since you own a small part of the company.

Stocks fluctuate in price depending on how the company is doing (or how stock traders think the company is doing.) For example, if Company A just released an amazing new product that is selling like crazy, the prices for Company A stocks are going to rise.

Alternately, if Company A experiences falling sales, or the CEO quits for some unknown reason, their stocks are likely going to fall.

Advantages: If your stock is good and the company is flourishing, you can really make a lot of money. The money is also liquid. This means that you can get it at any time by selling your stock because many traders are buying and selling….money is flowing…the money is liquid.

Disadvantages: If a company does poorly, so does your stock. Because a stock isn’t diversified, that can mean disaster for you (although you can easily reduce your risk by picking bigger, solid companies).

It’s important to note it’s nearly impossible to game the stock market — so it’s not worth trying for the lay investor.

Now let’s take a look at how you can actually trade stocks.

“Trading” stock is a bit of a misnomer. All it really refers to is the buying and selling of stock for money. So whenever you purchase or sell your equity, that’s considered trading.

And there are two ways you can trade stocks:

  • Exchange floor trading. This is the kind of trading you see on movies and television with all the people shouting on the floor of the New York Stock Exchange. It’s a bit of a complex process, but at its core, here’s how it works: You tell your broker to purchase stock from a company, the broker sends a clerk to the floor to find a trader willing to sell you the shares, they agree on a price, and you get the shares.
  • Electronic trading. This is a much more intuitive process for individual investors. It most often comes in the way of online brokerage platforms that allow you to immediately issue a trade during trading hours. No more relying on screaming floor traders to pick up shares for you.

For our intents and purposes, we’re going to be focused on electronic trading. That’s how I trade stocks.

If you decide to enter the stock market, that’s on you. It should ALWAYS BE ON YOU!

NEVER LISTEN TO ANYONE REGARDING STOCK ADVICE! No one knows what the stock market will do! IT’S IMPOSSIBLE TO KNOW. Get this in your head and keep it there!

Chicago Board of Trade stock exchange 1800s
Chicago Board of Trade stock exchange 1800s

I’ve always been interested in the stock market for some reason. My uncle sat me down at an early age and told me about IRA accounts and trading stocks. One thing I remember him saying is to stay away from penny stocks and he was right!

A penny stock is a share trading for anything under $5 (usually under $1.) Penny stocks can also go as low as fractions of a penny! I have just told you to NEVER trade penny stocks. That’s a warning not only from me but from the greatest stock traders of all time, meaning, people who knew the business from YEARS AGO.

I’m sure you know how stock trading works. You buy low and sell high. If you buy a share of stock that is worth $10 a share and the next day the price goes up to $11 and you sell it, you make $1.

The more money you spend on stocks, the more money you can make / lose.

Keep in mind that you’re charged an average of $7 per trade (regardless of the amount of shares you buy or sell.) You are charged $7 for the purchase and $7 again for the sell. In order to break even, the share you purchased at $10 would need to be sold at $24 to cover the cost of buying and the cost of selling. To make a profit, you would need to sell greater than $24. The good news is the $7 purchase fee is a flat fee regardless of the amount of shares you buy and that goes for the $7 sell fee as well.

I use the robinhood trading app and LOVE IT! Robinhood doesn’t charge any fees at all for buying or selling. So if you sell your $10 stock at $11, you keep the dollar.

You can signup for robinhood here. They will give you a free stock when you do.

In order to make more money you need to spend more money. One share purchase will not make you much money.

If you had $1,000 to spend on buying stocks, you could buy 100 shares of that $10 stock. If the price goes to $11, you make $1 per share, which would be $100 profit.

Not bad if it goes up $1. What if it drops by $5 a share because the CEO of the company was involved in fraud or something bad. Well, the product they manufacture may be doing GREAT but traders panic and start to sell because they think everyone else is going to sell. This is known as PANIC SELLING! So now your $1,000 account is worth $500.

Will you panic and sell or stay in the game? You don’t lose money until you actually SELL your shares.

SHOULD YOU STAY IN THE GAME AND HOPE THE STOCK GOES UP?

SHOULD YOU SELL AND TAKE YOUR LOSSES? It’s up to you.

I would stay in because stocks will go up in time. They go up and down. Some people see this as an opportunity to buy the shares at 50% off. I would buy shares at this time and take advantage of this mass dip in price. It will go up again, unless the company goes bankrupt or something. Anything can happen.

Here’s a video I made on HOW TO TRADE STOCKS FOR BEGINNERS

My point to you is no one can predict the price or the company’s profits or losses. NO ONE should be giving you stock advice and no one should be charging you a monthly membership fee to join a secret club that will provide you with the NEXT GREAT STOCK to buy. My advice to you, no matter how tempting, is to steer clear of anyone wanting you to join their club for a fee. In turn, they will provide you with their stock picks. This is total BS! Again, do what you want.

How can someone tell you without a doubt, that the coin flipped will land on heads or tails? They can’t! No one can do that.

The only time someone may get a stock tip is from an insider working at the company you’re thinking of buying stock in. They may talk it up to get people to buy. You think they’re trying to give tips but really, they know the press will get wind of their company’s wrong-doings and once that happens, their stock price will plummet! They’re trying to sell their stock at the going price before the media gets wind of it. They don’t want to be caught holding the bag. This happens a lot!

Chicago board of trade also known as CBOTI used to work at the Chicago Board of Trade on the trading floor as a computer tech to the floor. What an amazing experience that was! I’m honored to have been such a large part of Chicago History, which I LOVE! It was also very stressful to say the least. Unfortunately the Chicago Board of Trade is now owned by the Chicago Mercantile Exchange (CME.) I worked there as well.

One of the most beloved buildings in Chicago sits at the southern end of the LaSalle Street canyon. The imposing Art Deco Chicago Board of Trade Building is on the same site as an earlier Chicago (1800S.)

Some of the richest people on the CBOT trading floor were younger guys in jeans and sneakers. The older guys in suits you would expect to be rich, but some of them were the poorest.

Have you ever been gambling before? Maybe it’s poker or maybe it’s the horse track. You’re up $89 and you tell yourself you’ll stop at $100. Well, now you’re at $105. Do you stop? Most people will not stop. They then say, ok, I’ll stop at $125.

The stopping number never comes. Anything that goes up must come down. They start to lose their winnings and are now at $15. That $89 looks pretty good now doesn’t it? Well, it’s gone. Now you’re chasing to try and get it back with SCARED MONEY. That’s what they call money you either can’t afford to lose or are frantically trying to get back.

Never trade stocks with scared money and never trade with emotion.

I have lost money in the stock market because I knew it would go higher. It had to go higher. There were so many people buying that day, setting the stock price to the moon, as they say. Yeah right. As soon as most stock traders made profits, they all started to sell and the stock price dropped like crazy. I lost my profits and half my account. It can take a very long time to get that money back, if you can at all. IT’S GAMBLING!

I no longer trade like that. I decide what price I want to buy at and when the stock gets there, I purchase my shares. Before buying the shares I know what I want to sell them for in order to make a small profit of 5% roughly, and also what I need to sell the shares for to cover the $14 fee.

That’s the basics of trading stocks. It may take days or weeks for your prices to come but if you wait, it will happen…unless something bad happens within the company.

Most penny stocks are fake companies.
Most penny stocks are fake companies.

Most penny stocks are fake companies. These are known as pump and dump scams. I got burned so many times for buy shares at 0.01 each, thinking that when they reach $1 at least in price, I will make 100X my investment. It never happened that way and I lost money each time. Sure, there were times I got really lucky and made $200 in less than a minute. I was in the right place at the right time. I bought low and it skyrocketed so I sold 5 minutes later. I DO NOT recommend penny stock trading to anyone.

DO NOT signup for mailing lists promising you the next great stock pick. This is so ridiculous! No one knows what the next stock will be. All you can do is watch the news and see what is happening in the world. This will impact the price of stocks.

Also, pick a stock that interests you. If you’re into technology like me, find out what Apple stock is going for and buy that if you can. Maybe it’s AMD or INTEL processors. Maybe you like agriculture or Gold or silver. Amazon used to trade low but is now passed $1,000 a share!

If you want to read further on trading stocks, check out books on Amazon. Find ones that resonate with you and that have great reviews. Read a few at least, to get different perspectives. GOOD LUCK!

HOW TO TRADE STOCKS: BOOKS ON AMAZON

I use the Robinhood trading platform to trade stocks. Click here for info and to start your account.

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Steve

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