7 Steps to Make Money Trading Stocks
With about 80% of day traders calling it quits within two years of trading, learning how to successfully make money trading stocks has never been more important.
While it is good to be motivated by the experience of those who have made millions in stock trading, without knowledge and guidance, you can end up losing your hard-earned money in the fear-greed cycle that is often the bane of traders (and investors alike).
In this article, we will introduce you to seven important steps that we have learned from the practices of successful stock traders and investors that can help you make money trading stocks.
1. Understand the stock market
Knowing that there is money to be made in the stock market is not sufficient. Warren Buffett once cautioned that you should not invest in a business you don’t understand. It’s the same here.
Before you invest a dollar in the stock market, invest in understanding what the stock market is all about. Read educational blogs and books about how the stock market operates and learn from the experience of those who have been there, done that.
2. Start with demo or fractional trading
Once you have understood the stock market, you still need to be patient before just diving in. Try to put what you have learned into practice through demo trading – trading with virtual rather than real money.
Alternatively, if you want to practice with real money, you can start by buying a fraction of a share (e.g. 0.1 of APPL) – what is called fractional trading.
Both demo and fractional trading can help you build confidence for larger investments.
3. Do fundamental analysis
Never buy a stock just because everyone is excited about it. Always create time to look at the fundamentals of the stock.
Even though you are a trader, you will still want to be sure that a company’s share price can increase intrinsically in the future due to growing earnings (which is what drives stock prices). This is especially relevant if you are a position trader.
Also, you want to be sure the company does not have short-term liquidity problems or bankruptcy threats.
Therefore, checking the company’s profitability, liquidity, and solvency ratios can be a good place to start.
4. Do technical analysis
More important, especially for scalpers and day traders, is technical analysis. In addition to buying the right companies, you need to buy them at the right time.
To be a successful trader, you must understand charts (especially candlesticks charts), moving averages, and trading indicators. These three will help you understand the trend of the market and whether there will be a continuation or reversal of the trend, which, consequently, will determine when you buy or sell.
5. Create your own strategy
Again, don’t follow the crowd. Fear of missing out (FOMO) has been the bane of many traders.
Instead of following the crowd, create your own strategy and stick to it. Your strategy will tell you what to buy, when to buy it, and when to sell it.
6. Don’t put all your eggs in one basket
No matter how good your strategy is, you will still make some wrong decisions. The goal is to make more right decisions and earn more from a right decision than you lose from a wrong one.
One way to minimize your risk in stock trading is to diversify your holdings. Don’t put all your money in one or two stocks; rather, spread it across a number of stocks that are negatively correlated or uncorrelated to one another.
7. Keep an eye on your portfolio
Lastly, ensure you keep an eye on your portfolio of stocks. It is only what gets measured that gets managed.
One way to keep an eye on your portfolio is to continue to test and improve your trading strategy based on new information and ideas so you can reduce your losses to the barest minimum.
When learning how to make money online trading, you must also ensure you are using a trading platform that offers the best value.
For example, on Sarwa Trade, you can buy and sell stocks at zero commission with no minimum trading requirement. The platform also allows fractional trading for those who don’t have much to invest or want to practice before investing more money. Furthermore, your data and money are protected with bank-level SSL security.
Learning these seven important steps and opening up an account with a platform like Sarwa Trade will put you on the right track to start making money trading.