How to Trade Stocks

So you decided to trade – now what?

Perhaps you are not happy with your advisor’s performance. After all, how much worse can you do when your “professionally managed” portfolio lost 50% in the latest meltdown? Or maybe your net worth is not high enough for today’s high net worth advisors. Or maybe you just came into some money and think you can do better managing it yourself.

Know the Basics Before Taking the Plunge

After all, nobody cares about your money more than you do.

The proliferation of online trading has made it easy to trade any financial instrument. But easy does not mean profitable. In trading, as in most for-profit ventures, money flows to the top of the pyramid. Most people who take trading lightly end up losing; most traders wash out within five years.

The first thing to decide is what to trade. The market is too big for any one person to be equally good at everything. Should you trade small caps, mid caps, large caps, value, growth, ADRs, options, futures, commodities, currencies, ETFs, inverse 3xETFs, IPOs, biotechs?

Advantages of Small Caps

Many people view stocks as gambling. It is. But, unlike a game of chance, stock trading is a type of gambling where you can turn the odds in your favor.

Stocks, particularly small capitalization stocks, offer the best profit potential. Think about it: the best way to get rich is to own a business. Most rich people are business owners, not movie stars or baseball players. Have you ever dreamed of coming up with a gadget that the whole world will line up to buy? Well, the second best thing is to own a part of somebody else’s successful business. Like Bill Gates’, for example. The key is to get in early and stay for the ride. That’s what trading small caps is.

In this series we will cover things as diverse as how to choose an online broker, read financial statements, and use charts, but only as they apply to stock trading.

What is Trading Anyway?

Trading (speculation) is buying an asset with the expectation of reselling it higher. Some call it a greater fool principle: you are betting that there will be someone else down the road willing to pay more for the asset than you just did. Whatever you call it, it’s a wealth transfer mechanism. The goal is to take more money out of the market than you put into it. Often at the expense of others.

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