How to trade stocks in 2022
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The stock market provides thousands of opportunities to trade stocks and shares every day. In the internet age, it’s easier than ever to start trading but it takes time to master. This guide is a starting point that teaches you how to trade and all the key information you need to know about creating a trading strategy.
What is the best stock trading platform?
Sign up to a trading platform using the links in the table below. These are our favourite stock brokers and trading platforms, ranked according to the overall service they offer. To learn more about stock trading before signing up, keep reading.
How to trade stocks – a step-by-step guide
Follow the steps below to make your first trade. It’s a very simple process to get started and you don’t need a lot of money to do so.
1. Sign up for a trading platform and deposit money
To trade stocks you need an account with an online stock broker or trading platform. The trading platform acts as an intermediary between you and the stock market, where you can buy and sell the stocks you want to trade. Choose a platform, create an account, and then fund it by transferring money using your favourite payment method.
2. Research the stock market to learn what moves the price
There are many different factors that can affect a stock’s price. There are fundamental factors, such as its business performance, competitors, and economic conditions. Then there are technical ones like support and resistance levels and chart patterns. Spend time researching both in order to get a full picture of how the price normally moves.
3. Perform technical analysis
Trading decisions are based on analysis of a particular stock’s price chart. Learn how to identify chart patterns and use them to make predictions about how the price might move in the future. Each trader has their own favourite strategy and you should work on developing your own; there’s more information on what to look out for below.
4. Decide whether to go long or short
Trading platforms let you both buy (go long) and sell (go short) individual stocks. Use your technical analysis to make a prediction on which way you expect the price to move and then long or short the stock accordingly.
5. Search for the stock and execute the trade
Log into your trading account to place a trade. Each stock has a unique stock ticker that you can use to search for it; Apple is AAPL, while Amazon is AMZN, for instance. Search for the stock using its name or ticker symbol and hit the ‘place trade’ button. Enter the details of the trade, including how much you want to spend or how many shares you want to buy/sell, then execute the trade.
6. Set stop-loss and limit orders
You should have clear entry and exit prices on a trade before you open any position. Use stop-loss and limit orders to ensure that you stick to them. A stop-loss is an order that’s set to execute as soon as the stock price falls to a certain level and you use it to prevent major losses. Limit orders can also be set above the current price to lock in profit as the value of a stock increases.
7. Monitor position and close to take profit or cut a loss
Keep track of your open positions and be ready to close them out according to the rules you’ve set for yourself. The more frequently you trade, the tighter your rules should be, and you should have very strict controls over how much you’re willing to lose on any trade.
Ways to trade stocks
There are two ways to trade stocks. You can either buy and sell stocks from a stock broker, or trade CFDs from a broker or trading platform. Learn more about each option below.
- CFD trading platforms. A contract for difference (CFD) is a financial instrument that tracks the price of the asset it represents. A Tesla CFD gets its value from Tesla’s stock price, for example. CFDs are ideal for traders because you can use them to go long and short, and they’re normally free to trade which makes a big difference to active traders.
- Stock brokers. With a stock broker you can buy and sell actual stocks. Owning stocks gives you more protection in case something goes wrong and gives you extra benefits, such as the right to earn dividends, if you hold them for long enough. Buying stocks as opposed to CFDs is usually more expensive, however.
Stock trading strategies
Each stock trading strategy falls into one of three camps. They are divided up according to how long a time frame the trader has; swing trading has the longest, while scalping is the most short term. Learn more about each strategy below.
- Swing trading. Swing trading is a strategy based around finding stocks where you expect them to experience a significant change in price and holding them for a few days or weeks. Swing traders use more fundamental analysis of a business than other types of traders, because a company’s performance is more relevant when you hold a stock for longer than a day or two.
- Day trading. Day trading means buying and selling a stock within the course of a single day. It’s a strategy that relies on having low fee or free trading and the time to spend performing constant technical analysis to identify opportunities in different stock charts.
- Scalping. Scalping is the most active trading method that involves buying and selling stocks extremely quickly to benefit from small fluctuations in price. Scalpers normally use leverage to make large bets on small price changes and must set tight stop-losses to prevent one big loss from wiping out gains made elsewhere.
Stock trading indicators
Each trading strategy is built on a combination of different indicators. These indicators help traders to read and understand price charts and to make predictions about how a stock price might change in the future. Here are some basic indicators that every trader needs to know about.
Support and resistance levels
Support and resistance show you the prices at which there are a lot of buyers or sellers of a stock. Support indicates a price where there are a lot of buyers and may be a point at which you can expect the stock to pause or rebound during a fall. Resistance is the reverse, a price at which there are sellers and where a price rise might stall or bounce back.
In the example above, you can expect to see resistance if the Tesla price reaches $1200 and support if it falls to $700. These levels are often at or near round numbers and you can use this to your advantage to create a strategy around where you expect prices to rebound.
Trends simply help you visualise which way a stock price is moving. A price can obviously trend both up and down and the trend line can be a useful indicator to pinpoint where the price move began and open up avenues for further investigation.
A trend on its own is rarely enough to trade on, but you can use it to pick out more advanced indicators, such as wedges. A wedge can show you when pressure is building up in a war between buyers and sellers and can often lead to a breakout.
A channel refers to the price action between two parallel lines. Channels can be horizontal, ascending, or descending. A horizontal channel is essentially a demonstration of support and resistance levels in action, as it shows the price fluctuating between two prices without breaking through.
The example above shows how Apple stock traded sideways within a channel between $150 and $180 for a few months. You can trade this pattern by opening a position as soon as you see signs of the price bouncing off support or resistance within the channel.
A moving average is calculated by adding up the closing price at the end of each trading day, divided by the number of days. Moving averages show you broad trends, particularly if you use one that includes a lot of data, such as 200 days.
Moving averages can also be used in conjunction with each other. For example, if the short term average crosses over the longer term average, it can be a powerful indicator. In the example above, from PayPal stock, there are two points where the lines cross, once where the 50 day line crosses above and then when it crosses back below, both times it’s followed by a major trend shift.
Volume shows you the amount of trading volume for a particular stock each day. It is shown at the bottom of a price chart, and the higher the candle the more volume. The candles are colour coded, with green meaning the stock closed higher and red meaning that it closed lower that day.
Like with any indicator, volume on its own doesn’t necessarily mean anything. But high trading volume often means some kind of significant price change is imminent. There may be more activity because of a company’s earnings release or some news but it at least acts as a jumping-off point for further inquiry.
A company’s business performance is an important driver of price action that’s easy to overlook. Major and sustained price hikes or falls are often related to the business or economic environment, and it’s important to be aware of anything that might impact the stock you want to trade. Some examples of what to look out for are below.
- Earnings reports. Every public company must submit financial reports every quarter. The news contained in the reports, such as its sales and revenue figures, can have a big impact on the stock price.
- Dividend payment dates. Some companies pay dividends to investors and the payments only go to those who held shares on a particular date. That date can see increased activity as people try to gain access to dividends.
- Competitor performance. If a new competitor breaks onto the scene it can impact a stock’s price as long term investors lose faith in its potential to deliver results over time. Swing traders, in particular, need to have a sound appreciation of the industry the stock is involved in, just in case something changes while you have an open position.
Should I trade stocks now?
You should consider your attitude to risk and develop a strategy first. Decide how much money you’re willing to put on the line and how much time you have to trade. Successful trading requires a large time commitment, particularly if you want to try scalping or day trading.
The rewards on offer can be large if you stick to a plan and keep a clear head. There are thousands of stocks available to trade and almost as many different strategies to choose from. Stock trading can be a full time job, or something you do on the side.
A free demo account is a good place to start if you’ve never traded stocks before. Any broker worth its salt will offer one and it gives you the opportunity to practice and test your strategy before putting real money on the line.
Pros and cons of stock trading
Use the pros and cons below to decide whether stock trading is for you. Then sign up to a broker using the button below, set up an account, and get ready to make your first trade.
- Can start with as little as £10
- Most trading platforms offer a demo account to practice with
- Lots of brokers offer no-fee trading
- Can trade thousands of stocks from around the world
- Use leverage to make your money go further
What are the fees for stock trading?
There are no fees for trading stocks with most brokers. A good example of this is eToro, one of the most popular trading platforms, which offers completely free trading. With traditional stock brokers you may have to pay a flat fee of between £2-£10 per trade, or a monthly subscription to access the service.
By signing up to a trading course. There are many stock trading courses available online. Invezz has our own short term trading course that teaches you all about the basics, such as the terminology you need to know and basic chart patterns.
The best way to start is with a free demo account where you can try out different trading strategies. Almost every broker offers a demo or virtual account, where you buy and sell stocks with virtual money without risking any of your capital until you know what you’re doing.
By signing up to an online stock broker or trading platform. Setting up an account is easy and you only need to provide a few contact details and a form of ID. Then you can start trading, although it’s a good idea to start with a demo account so that you can practice first without risking any money.
Most day traders make money through successful trades. It is possible to become a full time day trader where a company gives you much larger sums of money to trade and you keep a percentage of the profits. However, most day traders are self-employed and are ‘paid’ based on how successful they are.
Yes, day trading is completely legal. Stock brokers and trading platforms have to be regulated in order to offer trading services and you are protected against any illicit activity.
There is no limit to how much you can make, but even the best traders only win 50-60% of the time. You need to be prepared for some trades to go wrong and set your stop-losses accordingly to protect you from big losses. An annual return of 20-30% on the money you started with would be a very good result.
There is no limit to how much you can earn but beginners are bound to make mistakes and you shouldn’t expect to earn too much. Even experienced traders are wrong almost half the time and may make a profit of about 20% overall. That’s why it’s a good idea to start with a demo account before putting any real money at risk.
Fact-checking & references
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