The stock market is an open opportunity for everyone interested in growing their net worth. As with any financial venture, it’s good to be as educated as one can before entering into securities trading.
Modern investors have multiple options for finding a professional stock trading course — and that profusion of choices can make it hard to find one most suited to your needs.
There are a few basic concepts that a professional stock trading course needs to cover. We’ve outlined and described a few of them here. These are bedrock approaches and theories that a solid professional stock trading course will always address.
Opening a Brokerage Account
The internet has leveled the playing field for the stock market. Before brokerage houses went online, stock orders and sales were typically conducted over the phone with a professional stockbroker. That model hasn’t gone away entirely, but the digital marketplace has taken hold of stock trading just as it’s done with other traditional businesses, like retail and travel.
Opening a stock investment account is now extremely easy. You can do so websites for traditional brokerages, like Fidelity, TD Ameritrade, or Charles Schwab. Companies that have emerged in the internet era, such as Robinhood, Acorns, and M1 Finance, offer brokerage accounts as well. Most sites have done away with the commission and trading fees that were part of the old model. Several offer research and guidance, and others offer robo-advisors that automatically craft algorithm-based stock purchase strategies. Resources like SoFi are built around the robo-advisor concept.
The keys to choosing an online brokerage are ease of use and sufficient customer support. Affordability is also a factor, but since most upper-level brokerages and sites have eliminated most if not all additional costs, it’s less of a concern than it used to be.
Finding a Trading Strategy
The stock market is a unique financial tool because it responds to and benefits a wide range of investment styles. So, the first consideration for any new stock trader is what kind of investment strategy they’ll employ. Plenty of factors come into this decision — investment goals, risk tolerance, even personality — and most individuals’ strategies are blends of several different approaches.
A trading strategy can be framed in a few ways:
Active vs. Passive. Active investors are very aggressive, and usually take a direct, hands-on approach to their investments. They’re money managers whose goal is to outperform the average gains of the overall stock market. They strive to earn profits from short-term price hikes of a certain stock, which requires a very deep level of expertise and analysis.
Passive investors are more oriented toward the long view. They don’t trade as frequently, and generally seek investments that they can leave alone for a long time and expect solid, long-term growth. They don’t have the same profit-making drive as active investors. Passive investors tend to buy stock in companies that deliver consistent profits over the years, businesses that have successfully navigated occasional market setbacks and downturns.
Growth vs. Value. Growth stocks are tied to companies with strong potential for future growth that will outperform the stock market average. A growth stock is typically an up-and-coming company that’s favored to expand and grow its business in the next few years. They are considered risky but can end up lucrative investments.
Value stocks are associated with tried-and-true, established companies whose stock price is currently undervalued for some reason. Analysts who pick value stocks believe investors should get in on the stock now because it’s offered at a cheaper-than-usual price and they expect the business to rebound in the near future.
Risk Tolerance. Playing the stock market is risky, no matter what level you trade on. The key to determining whether you want to be an active or passive investor, whether you favor growth or value stocks, is knowing how prepared you are to stomach the risk.
Those with high risk tolerance are more prepared for active investing, such as day-trading and short-selling. Others not quite as equipped to manage risks steer toward long-term, safer investments, such as blue-chip companies and indexed and mutual funds.
There’s no right or wrong answer to what investment strategy works — simply that you need to seriously think about your goals and priorities.
Setting a Budget
Whatever investor type appeals most to you, preparing and sticking to a budget is a crucial part of successful trading. This involves knowing exactly how much cash you have on hand, taking care of high-interest debts, ensuring that your daily expenses and financial needs are always met, and being clear on your investment goals.
Determine your net worth. Knowing how much capital you have on hand is the first part of setting a budget. This is simply a matter of calculating all your current assets (cash, home equity, savings, retirement accounts, etc.) and deducting your current debts (student loans, mortgages, credit accounts, car payments, etc.).
Paying off high-interest debts. Experts recommend paying down any outstanding debts with high interest rates — commonly, credit and loan repayments — before venturing into the stock market. Some suggest repaying all debts with double-digit interest rates; others suggest squaring debts with interest rates that are higher than the S&P 500’s annual return rate.
Examine your living expenses. Determine how much money you need to maintain your lifestyle and take care of expenses. It’s best to do this every month. Keep track of all you spend in a given month, where those payments go, and how much you can afford to invest after taking care of your and your family’s needs.
Determine your investment goals. If you’ve figured out what kind of investment style you want to espouse, you’ve probably already considered your investment goals to come to that decision. Reconsider those goals in the context of setting a stock budget.
Technicals and Fundamentals
Once you’ve opened your account, chosen an investment strategy, and set a budget, it’s almost time to pick what kind of stocks you’re going to invest in. Before you leap into the market, a little research is in order.
There are two planks of stock research that every professional stock trading course should address:
This research mindset relies on a statistical analysis of a given stock’s history and performance: share price fluctuations, trading volume, patterns, and trends. Technical analysis employs all this information to project how a stock will perform in the future.
This kind of analysis strives to measure the overall worth of a given company, known as its” intrinsic value.” Fundamental analysis includes investigating a company’s financial profile: revenue, expenses, debt levels, assets, and liabilities. It also involves market research, evaluating company leadership, and monitoring industry news.
Both forms of stock market analysis have defenders and detractors. Some technical analysts think there’s no need to incorporate fundamental analysis because it’s already factored into the stock price. Some fundamental analysts think technical analysis is overly subject to speculation and bias. In reality, both approaches are useful.
Either way, most online brokerages offer solid and reliable access to both kinds of information for all the companies they cover. These companies are also required to make annual reports to the Securities & Exchange Commission, which are publicly posted and obtained with a simple web search.
Market and Limit Orders
When you’re near the point of purchasing a stock, you’ll have two ordering options. Both are easy to execute with an online brokerage.
- If you place a market order, you’ll purchase shares at their current market price. This means your stock purchase is executed and confirmed quickly, but possibly at a price higher than you would have paid if you’d waited.
- If you place a limit order, your purchase will be automatically executed as soon as the share price reaches a point you specify. This means (in theory) that you get the stock at a more favorable price but could take more time to execute.
Personal investors, who trade at much smaller volumes than professional brokers or money managers, are usually fine making market orders. If you’ve decided to purchase a stock, chances are its price won’t fluctuate over a single trading day to make much difference. But as with any trading you do, keep in mind there’s always the chance of a steep and sudden price drop.
Success in the stock market is measured in several ways. For a single stock investment, the most obvious indicator of success is value growth. If you own a share of Microsoft stock and you notice its price has gone up 2% over the last month or so, you’re at least off to a good start.
But most stock portfolios are comprised of multiple stocks (and if yours isn’t, that’s something you should change). When your investment strategy includes multiple positions across different business sectors, one way to judge its overall performance is by comparing it to certain stock market indexes.
Stock market indexes include a few names you’re probably already familiar with: the Dow Jones Industrial Average, the S&P 500, and Nasdaq, for example. These indexes measure how the stocks of a few top companies perform on a daily basis. The Dow Jones measures price movements of 30 of the top companies in the world; the S&P 500 measures 500 leading companies; the Nasdaq (which is also an exchange) favors tech and internet stocks but covers all companies who trade on its exchange.
The goal of a stock portfolio is to at least match, and preferably out-perform, the percentage gains on one or all of these indexes. If your portfolio goes up in value by 40% over six months, and the Dow Jones increases value by 25% during the same time, then you’re beating the stock market — at least according to Dow Jones. The Nasdaq may have increased value by 38% over that same time, in which case you’d be beating them, but not by as much.
Aggressive investors trade the way they do — frequently selling high-priced shares, constantly adjusting their portfolio content — to beat the market as much as possible. Conservative investors are okay with just keeping up with the stock indexes, as long as they’re growing steadily.
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