Dee is a successful entrepreneur who generally values common-sense and experience over 'book' sense, fancy degrees, and lofty titles.
Don't Be Like Me - Read This Instead
Disclaimer: The information presented in this article is not intended to be financial advice. Invest at your own risk.
It took me 5 (unnecessary) years of study and angst to make my first trade. I got really bogged down with all the terminology and thinking that I had to know and understand it all before I dipped my toe in. I literally experienced the 'paralysis of analysis'. I believe all consumers should become investors, but it's a scary leap, I know. This article pares my 5 years of research, education, and basic lack of confidence down into 5 steps for the beginner trade enthusiast.
The 3 Keys to Stock Trade Readiness
Mindset Is The Key To Unlock Financial Freedom
(You scared or not??)
Stock trading is not rocket science. It is not as difficult as the shroud of mystery, which cloaks it, makes it out to be. If you commit yourself to embracing the basics, you can make money doing it. Period. That being said, you must train yourself not to despise small beginnings. You can reasonably expect to make a small percentage of what you are willing to risk in trading. And understand this - you will not win on every trade. But what's better is that you do not have to win on every trade in order to do well trading. It's the average gain at the end of the period that matters. Only when you free your mind of these types of shackles will you be open to receiving financial gains. When asked, I had a multi-millionaire tell me his best financial advice: Instead of only being a consumer, become an investor. That is a major shift. Once you do that, you will begin to think about finances differently. You won't spend all that comes into your hands. You will begin to ponder how your money can make more money for you.
Education Is The Key To Unlock Resource Tools
(You don't know nothin')
I could lay out all the resources I use and books I've read and classes I've paid for. Perhaps I'll write a whole book one day and do that. But for now, I'm going to teach you how to fish instead of giving you my fish. It will benefit you most to put in your own work. Develop your own methodology:
- Start a trade account and explore the tools there: I use TD Ameritrade. I love their resource tabs, as well as their trade platform, ThinkorSwim. Starting an account is free and you can put as little as $100 in the account to start. From there, the tools are free to use.
- Use ThinkorSwim to do 'paper' trades. These are fake trades, using fake money, but using real time data. It gives you the results of your trade as if you had used real money.
- Use your trade platform to become familiar with reading charts and drawing trend lines.
- View videos on YouTube and the trade platform from Ameritrade teachers on various topics of interest, such as how to use ThinkorSwim and how to read charts.
- Become familiar with the Finance tab on Yahoo.com. There are watch lists for trending stocks, hedge funds, etc., along with recent news related to companies and important stock indicator dashboard for each stock you search (covered later in this article).
Initial Investment Capital
(Show me the money!)
Now is a good time to start putting money aside to fund your trade account, as you are doing your due diligence and putting in the effort to use the above tools to learn about trading! The money in your trade account should be funds that are not needed to pay bills or other obligations. If you are struggling to pay your bills, then I would strongly suggest that you put a plan in motion to handle that piece first. Investing and trading in stocks will become too stressful if you are depending on the capital gains to pay your bills. Stress will pressure you to make bad decisions in your trading strategies. Consider the following for your initial investment capital:
- If you have direct deposit, consider allocating a percentage to your trade account. With most direct deposit systems, you can directly connect your trade account in the same manner as you directly connected the initial deposit account.
- Based on the 10% strategy component discussed below, you will need at least $2,000 to trade a $2 per share stock. While you can start trading with a trade account balance of less than $2,000, having at least that amount in your account will make trading gains easier.
- Do not initially depend on margin accounts to fund your investments. Margin accounts are basically like taking a loan from your broker, which has to be paid back with interest.
Stock Charts and Indicators
Now that you've worked on mindset, education, and initial investment capital, let's talk about how to choose your first investments. Reading stock charts and understanding stock indicators takes practice, for sure. But the basics are not difficult. I like to use Yahoo.com because I find it easy to understand the chart and dashboard data info:
Understanding the stock dashboard
When you navigate to the Finance tab, you can enter any stock ticker symbol in the search bar and get a stock dashboard like the above Apple stock dashboard. You spend some time studying this info. There are also numerous videos on Youtube explaining these indicators. Below are a few indicators are check out when choosing a stock to invest in:
- Price point: Choosing the right price point is based on how much you have in your stock account, and subsequently, how much you want to risk on each trade. My rule of thumb is to keep the total amount of entering the trade at no more than 10% of my total portfolio. Additionally, I usually trade 100 pieces of stock. Therefore, I am looking for stock prices of 1% or lower of my total trade account balance. For example - if I have $10K in my account, I'm trading stocks with a price point of $10 or less per trade. ($10 x 100 shares is $1K, which is 10% of my $10K account). For this apple stock, I would need to have $167K in my trade account before I would buy 100 shares to enter a trade.
- Average volume: You want there to be enough volume so you don't have an issue getting in or out of the trade. The volume represents how many trades are being made on average per day for this stock. It's kind of an indication of how much people are interested in that particular stock. I look for an average volume of $1M and above. This apple stock has over $75M.
- Range of movement: I use the 52-week range and short term views of the stock chart to assess how much the stock price typically moves. If the stock has only moved a few dollars within the last year, it may be an indication that it's moving too slowly to meet my goals. When I first started to trade, my goal was to buy 100 shares and have the price point move at least .50 cents within a few weeks, which would net $50 per trade.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.