Learn How to Trade the Stock Market in 5 Steps

Last Updated March 30th 2022
5 Min Read

Financial markets can be a maze for anyone starting out and the stock market, in particular, can be quite challenging for beginners. Entering a fast-moving, unpredictable and competitive market without the required understanding and experience can be fraught with risk. 

For anyone who aspires to not just avoid losses but to also make profits, it’s important to get the stock market fundamentals right and shorten the learning curve.

Before we analyse the steps themselves, a good starting point will be to step back and evaluate your life goals and understand the financial dependencies linked to these. It helps to be clear on what your current situation is and pace your investment plans in line with access to capital.

Getting ahead of your current financial situation and over commit your ability to set aside available funds or borrow heavily can be detrimental. So make sure you start off on an optimal note and then work your way to a bigger portfolio and trading level based on that.

Here are 5 pointers to learn how to trade the stock market and be a successful trader

1. Getting a Stock Trading Account Opened

As a stock trader, you should start by opening a trading account. For this, it is best to identify a reputed online stockbroker and get an account opened with them. 

Because there are many good options, it makes sense to do a bit of research and read up on reviews and feedback of their product and services before finalising one. Also, study their terms and conditions and their service fees and charges and compare them with the competition.

Many of them offer an impressive array of features like trading tools, research material that is constantly updated and even virtual trading that can be useful for those starting out. 

2. Brush Up on Your Knowledge Levels

The stock market can be really complex and demanding for even experienced professionals. To start trading, you need to take learning seriously. There is no shortage of information and tutorials online and many of these are even free. There is also a wider and specialised body of educational material in the form of financial newspapers, journals, books and online courses

Similarly, a serious trader will ensure that he is constantly updated on a day to day and even hourly developments and trends. The stock market can be extremely fluid and volatile and keeping abreast of the latest news and updates is just as important. 

News websites that have useful content related to finance and stock markets include Google Finance, Yahoo Finance and CBS MoneyWatch, to name a few. But to stay updated with more specialised content, there are sources like Bloomberg Markets, Wall Street Journal, CNN Market, Forbes Money, among others. 

Then there’s essential reading for those who want to understand the stock market and its functioning. Here are a few titles that aspiring traders will hugely benefit from:

  • Reminiscences of a Stock Operator by Edwin Lefevre 
  • The Intelligent Investor by Benjamin Graham
  • Market Wizards by Jack Schwager
  • Trading for a living by Dr Alexander Elder
  • Winning on Wall Street by Martin Zweig
  • The Nature of Risk by Justin Mamus

With the financial markets no longer working in silos and global trade impacting all stock exchanges, a serious trader must track overnight action to monitor trends and implications all around.

3. Learning the Art of Analysing

While accessing learning material and staying knowledgeable and updated is non-negotiable, being able to analyse all that wealth of information is equally key. It might look like an information overload but no smart player in the stock market will overlook at the fundamentals for technical analysis.

Whether it is the company spread sheets or the balance sheets or the price charts, the insights that emerge from these are the foundation for the decisions a trader will need to make. 

There will be occasional variations in the price movements that may not be grounded in the fundamentals but these are the results of short term volatility. Prices can stagger both ways in a choppy market or as the result of a sudden development in a particular stock. But it is, ultimately, the ability of a trader to analyse and interpret the technicals and charts that make him astute enough to predict the market and the stock movements. 

An experienced trader will have the ability to handle data and trends to anticipate price movements across short, medium and long term and create opportunities between these intervals. It is important to be able to analyse a stock using charts that cover these in timeframes like hourly, daily and weekly movements. 

4. Practising the Art of Trading Through Simulation

Finally, after all the theoretical stint at studying the markets and learning how to analyse, it will be time to put your knowledge to the task. 

There are facilities like virtual or paper trading that eases in a beginner onto the reality of a stock market without actually running any real risks. There are stock market simulators that mimic the actual trading arena that can be used to make mock buy and sell decisions and to get a feel of trading.

Working on these software that are actually sophisticated games help aspiring traders gain confidence by making trades and analysing their actions and ensuring proper use of the software. 

While entering the real world of stock trading will not allow for mistakes the way a simulator does, this mock environment is a great way to prepare you to balance your risk-reward judgment and decisions.

5. Exploring Other Avenues of Learning and Practising

To further your skills and career in a highly complex and challenging job like stock market trading, it is important to seek out advanced educational avenues like online courses that cater to specialised aspects. 

There are workshops and seminars conducted by reputed financial institutions and accomplished professionals in the field who can give great insights and share tips and secrets of their best practices. Whether these are on reading the market or investing and trading strategies, these can greatly add value to your future performance and career. 

Finally, taking on a proven professional as your mentor and guide can be a great way to hone your own skills. There are paid programs as well where it is possible to be guided by them and even watch them work. 

The above 5 steps can be invaluable to help you learn how to trade and become a successful trader in the stock market.

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