Breaking into the Market: Stock Trading Tips for Beginners

Getting into stock trading is a great way to grow wealth. Investing in stocks comes with some risks, but it also comes with great rewards for those willing to invest the time and energy required to learn the ins and outs of the market. It takes hands-on experience to really get a feel for market volatility and how to mitigate the risks associated with it, but even complete beginners can use the tips below to get started off on the right foot.

1. Choose the Right Trading Software

Unless investors already have plenty of money in the bank, the best way to get started trading stocks and learning the markets is to download a good software program. TradeZero offers everything active traders need to find stocks, keep up with trends, and get into commission-free trading. Plus, users don’t have to pay brokerage fees.

2. Learn About Investment Types

Traders can purchase single or multiple shares of individual stocks, but that’s not the only way to invest in the stock market. Stock mutual funds or exchange-traded funds offer a second option. These funds allow investors to purchase small pieces of multiple stocks in single transactions. Most investors opt to purchase both mutual funds and individual stocks to help them build a diversified portfolio that will keep their risk profiles acceptably low.

While mutual funds are inherently diversified, they don’t tend to offer the same possibility of meteoric wealth accumulation. Most investors hold mutual funds in retirement accounts, then buy and sell individual stocks as active traders. Investing in the right individual stocks can lead to a substantial payoff, although it’s important to note that the chances of hitting it rich are quite slim, even for those who do their homework.

3. Set a Budget

It doesn’t take much money to get started with stock market investment. The cost of purchasing an individual stock can vary substantially from a few dollars to thousands of dollars depending on how much the shares are worth. That means it’s possible for investors to get started building wealth or investing for retirement with surprisingly low initial funds.

Mutual funds have minimum buy-ins. They’re usually around $1,000. Exchange-traded funds are designed to trade like stocks, though, which means investors can purchase them for a share price. The cost associated with taking this route can be less than $100.

There’s no right answer when it comes to determining how much to invest in the stock market, but everyone should set an initial budget before buying that first stock or ETF. Most investors trying to save for retirement allocate large portions of their portfolios toward stock funds but keep individual stock investments relatively low.

4. Stay Focused on the Long-Term

Active traders have all kinds of intricate strategies for building wealth in the short-term, and some of them can pay off with a little luck. That being said, most successful investors stick with the basics and keep their eyes on the prize. They plan to keep their money invested for long periods of time and choose which individual stocks to buy based on their assessments of the companies’ potential for long-term growth.

The easiest way to stay focused on long-term growth is to avoid compulsively checking stocks multiple times a day. That doesn’t mean investors don’t have to check on their stocks, but long-term investments are designed to weather minor market fluctuations, and fixating on those will only create unnecessary anxiety.

5. Plan to Keep Money Invested for at Least Five Years

It’s rare for market downturns to last longer than five years. That makes this time horizon a good benchmark for novice investors. It also makes coming up with a budget easier. If the money will be needed to meet an immediate financial obligation within that time frame, don’t put it in the investment account.

6. Consider Risk Tolerance

Every investor has a different tolerance for risk. Those who are prone to panic with every fluctuation of the market should keep their portfolios more conservative and invest more in mutual funds than individual stocks. Investors with a high-risk tolerance can allocate more funds to individual stocks, which can have a higher payoff, but they need to accept that there’s also a greater chance of losing some or all of that initial investment.

7. Start Small with Day Trading

So far, this article has focused primarily on long-term investments, since day trading can be a dangerous game. It’s best to start out with small investments in a few stocks. Focus on just one or two stocks per session in the beginning and consider purchasing fractional shares if the stocks are expensive. Starting small will give future day traders a feel for how much time and energy is required and how much risk they’ll be taking on.

Since fractional trading has become so popular, starting small doesn’t mean buying up penny stocks. Stocks trading under $5 per share are only tradable over-the-counter since they are delisted from major exchanges. They are often illiquid and pose a very low chance of providing a serious payout.

8. Get a Feel for Timing

With day trading, timing is everything. Most market volatility occurs in the earlier and later parts of the day, with a lull in the middle. Rush hours offer veteran traders the opportunity for making serious money, but beginners may want to avoid trading during these times until they are able to recognize patterns. Many day trading novices spend the first 15 to 20 minutes of every day just reading the market without making a single move, and that’s a great way to get started.

The Bottom Line

Investing in the stock market can be very lucrative for those who take the time to learn the markets and understand their options. Risk-averse investors should play the long game and focus primarily on mutual funds. Aspiring day traders will have to accept more risk, but they can also expect better rewards if they make the right moves. Either way, newcomers to the game should come up with a budget before buying stocks and spend only as much money as they are comfortable losing to avoid serious financial missteps.

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