How to trade stocks in 2023
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.
77% of retail CFD accounts lose money.
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.
While trading is welcoming, in that it’s typically easy to get started and has low barriers to entry, it has never been welcoming in the sense that it’s easy to make money and hold on to it.
There are times when it’s easier to make money. For example, short-term trading was very popular during the Tech Bubble leading into the year 2000. When an asset is moving in one direction, a lot, it’s quite easy to make money. But to continually grow capital–and not lose it when conditions change–is not easy. Very few new day traders who saw a brief period of success during that time were able to continue producing profits…they gave it all back.
With a solid strategy and the right mindset, it doesn’t matter what’s going on in the world. There will always only be a few, of the many, how are very good at something. Day trading and swing trading are no different. There will always be only a few people who make money short-term trading, and the vast majority will lose, even though they have some brief periods of success.
Nothing has changed. Trading is a hostile environment. Newcomers are always welcome, but a piece of the cake is always hard to get. This doesn’t have to do with global circumstances though, that’s just the way it is in a zero-sum game (actually it’s a negative-sum game). For more on this topic see Why Most Traders Lose and Why the Market Requires It.
With a sound trading method, volatility, a crisis, or a trade war isn’t an issue. A trader learns to adapt to changing market conditions, including changes in volatility, volume, and direction. See How to Day Trade the Forex Market in Two Hour or Less. While the article discusses day trading the forex market, many of the concepts are applicable to longer-term trading and other markets as well.
It depends. Like anything, in trading you’ll face your own personal glass ceiling(s). For example, you may have a $10,000 account and make 10 pips a day on average, producing $100 on average per day. In order to make more, without risking more, you’ll need to grow that account, so you can take larger positions (all covered in the Forex Strategies Guide eBook).
By taking bigger positions, you don’t need to change anything. Just keep making 10 pips (or whatever it is that your methods produce) a day, but with a larger position so that the $100 per day becomes $120, then $150, then $300 and so on. That is very hard to do actually. Most people start fiddling with things, and trying to make 20 pips instead of 10 pips. By doing so you basically change what allowed you to make 10 pips consistently in the first place. New traders need to learn not to tinker so much.
Develop consistency first, and then grow the account using that method so you can take bigger positions. In this way, you keep the consistency and can slowly grow daily/monthly income. Whether the income provides a high-quality life is up to you. I know many people who make lots of money, but spend even more. I live in an affluent city, but there are many wealthy people living paycheck to paycheck. So money doesn’t determine quality of life…choices do.
Trading can produce a great income in a few hours or less a day, but how the extra time and money is spent/not spent is the true determinant of quality of life.
Making 10%+ per month is a reasonable expectation for a day trader (if using leverage and risking 1% per trade). Good traders make more.
With swing trading (because there are way fewer trades than a day trader would have), 4%+ per month is reasonable. Again, good traders will make more. Keep in mind, trading is not like a job where you get the same pay each month. Trading income will fluctuate. Please read the linked articles to understand how these averages will vary.
This is for the people who actually become successful. Overall, a very small percentage of people who try it will make a living at it.
The main reasons for failure are:
Impatience. You are becoming a “pro” at something…it takes time and a lot of practice. No one expects to become any other potentially high-paying profession overnight, yet people have this delusion about trading.
Not practicing the right way. Most people don’t make self-assessments, like “Is what I think should work actually working?” To become successful and stay successful requires constant self-checks.
One thing I must point out which frustrates to me to no end is the when people say “Well, if making 20% a month, in less than 10 years I/you will be
a Billionaire!” Not quite that simple.
The more capital you have, the harder it becomes to deploy that capital efficiently. Also, as mentioned, each independent trader typically has a glass ceiling. They reach a level they are comfortable with, whether it is a position size, or a monthly income, and they stay there. Yes, it is possible to push beyond this but many traders don’t want to…because they would need to start working on their psychology and possibly their strategies, risking what they already have. Trading is about lifestyle–working less, enjoying what you do and having enough money to enjoy your other interests.
Also, you may simply cap out in your market. This is especially true for day trading; you eventually reach the maximum position size you can efficiently trade in that particular contract, forex pair, or stock (see Why Day Traders Can Make Big Returns, But Aren’t Millionaires). If you increase your position size to make more money, the size of your positions will actually work against you to reduce your income. You are capped out, at your ceiling, and it will now likely take a fair bit of work to continue the upward progress in income via finding other trading opportunities/strategies.
There is a very wide pay scale in the markets…as an independent trader it’s up to you where you fall on that scale.
I say 6 months to a year, because 6 months is how long it took me. Some others I know took about 1 year. Many other successful traders will say it takes much longer: multiple years.
I can only discuss my own experience. To help speed up the process, put in some time on weekends during this initial phase. Therefore, put in 14 to 20 hours a week for at least six months. When I first started in 2005 (no prior experience) I worked on my trading about 7 hours a day (during the week; no weekend work usually), was barely profitable after five months and was making a regular income in month 6 and after.
That’s five months working 35 hours a week before I saw any payoff. That is about the same or quicker than most of the other day traders I personally know (and I know lots). See How Long Does It Take to Become a Successful Trader? to get more details on what’s required to really s쳮d.
If you work and only have a couple hours to trade a day, trade the same two to three hour period each day and develop consistency, and trade the same asset each day. Focusing on very specific things is a much quicker path to success than trying to trade and learn everything. For swing trading, look for your trade setups at the same time each day–it takes about 20 minutes a day.
Take screenshots, with comments/profits/losses/trades of each day you trade, and save them in a folder on your computer according to date. That way you can go back and look at what you did each day under the circumstances of the day. That is the best way I know to review, self-assess tendencies, and notice problem areas. In 6 months to a year, a dedicated person should be able to develop consistency and start building an income. The 6 months+ of practice should give a good idea of how much that income will be, and what it could be if the account continues to grow or if more capital is used.
Once consistent in a demo account, start trading with real money, and make sure you have a few months of profitable live trading under belt before giving up other income sources/job. See the 5 Step Plan For Trading Success.
The “self-assessment” part of the question is critical. Just putting in hours isn’t good enough. Practice doesn’t make perfect. Perfect practice only leads to improvement. Very critically look at what you are doing. Study charts to see if what you are doing would work in alternative scenarios. Is what you are doing working? Are you seeing improvement? Why, or why not? If you aren’t, you need to continue asking “Why?” Until you get to the point where you are actually practicing something that can eventually be profitable, you are just putting in hours, not practice. Practice is actually practicing something specific to become better at it. Most people just put in hours, trying random things (not specific) and therefore never improve.
This is topic is covered right at the start of the book. Pick one or two strategies you like. Develop a trading plan–how you’ll trade the strategies (time of day, which assets, position size, etc.). Then start practicing in a demo account. Before switching to real money, you should be profitable in the demo account for at least 3 months. Yes, you can read the blog, but try to only read posts that are related to what you are doing. Remember, focus on specifics (discussed above).
Once you’ve picked a couple strategies to focus on, and are building your trading plan, you’ve created your “trading home”. Live inside that home. There’s nothing for you outside. Just focus on learning those strategies and practice implementing your plan. That is it. Your search is over. There’s no more need to ever visit another financial blog or watch the financial news again. It’s all irrelevant once you’re trading a strategy that works. I have practiced my strategies to the point where they make money in all types of market conditions (this is where you are headed). So why would I need someone else’s opinion to trade? I don’t, and you don’t. I do seek help from time to time, and you may too, but only from trusted sources and the help is limited to a specific problem area.
Watching the financial news will NOT help your short-term trading. There is no reason to watch it except for entertainment/conversation with buddies. If you watch for entertainment, don’t let it affect the proper deployment of your strategies.
As a day trader or swing trader our only job is to take trades based on our strategies. No strategies covered in my book or swing trading video course discuss global events…they are irrelevant to consistency and will only serve to make you question your strategies or take trades which aren’t part of your trading plan.
The only exception is that you need to check the economic calendar daily to avoid day trading during major scheduled economic events (interest rate announcements, etc). We don’t care what the outcome of the economic event is…we just don’t trade for the couple minutes around its release.
To simplify: Pick one or two strategies > develop a trading plan > practice in a demo account > once profitable, switch to live. At this stage, if you struggle, you need to do more research on trading psychology. Once you have your basic strategies and trading plan, it is all on you…there is no need for outside opinion.
De-clutter and focus on practicing the implementation of your strategies perfectly. If you need guidance, seek help or read up on that particular issue, but avoid bombarding yourself with a whole bunch of useless trading opinions. There is so much information that it is easy to get sidetracked. Stay the course. That is what builds consistency, and allows for the all the things discussed throughout this article to become reality.
More stocks guides for beginners
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