Pimp My Trade

How to Get Started in Stock Trading and Investing

Posted on May 5, 2009 by Adam

The Yankees/Red Sox game is in a rain delay, leaving me time to write about one of the topics I am most passionate about! For an idea of what I think of the Boston Red Sox, check out this link).

In the aftermath of this “great recession”, as it’s now being called, we are going to see some interesting trends among investors. The financial crisis of last fall will have long lasting implications on the American investor. Wall Street failed us, and we won’t forget it. Trust in brokerage houses, pension funds, and mutual funds, whose rampant speculation caused the collapse of the Western financial world, will likely never return. So as the market strengthens, where do we go from here?

What's a stock?

I believe that there will be a resurgence in self-directed investing among average investors, both new and old. Gone are the days when Merrill Lynch and Morgan Stanley dictated the way we run our money. We’re taking a stand!

That is even more applicable to my generation. Those of us in our twenties and thirties will never trust Wall Street, but that doesn’t mean we won’t invest. We have to! I happen to be a more active trader, but as more and more people have direct access to the stock market, the line will blur.

Access to the stock market is becoming more democratic every day! It is becoming incredibly easy to be a real participant in the market and with enough practice and the right market conditions, there is money to be made. However, there is plenty of money to be lost if you go about investing and trading in the wrong way. I’ve been trading since I was 18 and I have made all the mistakes! I’m here to make sure you don’t make the same ones I did. Here’s some tips to get you going:

• Find a good discount broker. Even if you only plan on making trades every once in a while, a low commission plan can save you a bundle! If you’re more of a chart technician, try and find a broker like thinkorswim that offers a great charting platform and free live data (disclaimer: I am not affiliated with thinkorswim, just a happy customer). If you are more of a value investor or fundamentalist, go for the lowest commission possible. The broker’s software won’t do you any good in terms of fundamental analysis and if you want good charts, you can get them for free.
• Get a good book (or better, get several). When I started trading, I must have read 3 or 4 books about stocks, trading, technical analysis, you name it… cover to cover. The knowledge you will gain is invaluable, so get to the library. I like this one for technical analysis and this one for fundamental analysis. Read ‘em both.
• If you want to learn to trade, I suggest you sign up for the Pro Trader Course, which covers everything from how to read a chart to complex option strategies. It includes a 150-page Trader Manual that teaches you everything you need to know to be a profitable trader, step-by-step, an exercise workbook, and a subscription to weekly strategy videos and daily trade idea emails. It also includes free coaching for a limited time.
• Don’t risk any real money for at least 3 months (I sometimes tell people 6). There is no reason to rush into this. Money has been made in stocks for over one hundred years. That won’t suddenly change as soon as you decide to start having a go at it. This waiting period will also teach you patience, a skill that will come in handy every day in trading and investing. Thirdly, it will help you decide how you are most suited to trade, which I will discuss in a bit.
• During your three month waiting period, practice by paper trading. I recently opened an account with updown.com, which is free, and easy to use. They let you manage $1 million in equities. Paper trading will allow you to lose money without actually losing it. If you give yourself 3 months to paper trade, you will have established essential discipline that will serve you well in your live account, in addition to mastering the skills you have learned. A site like updown.com will help you to keep track of your performance.
• Decide what kind of trader you are. Keep in mind that I use the term “trader,” loosely. A trade can be anywhere from a few minutes to a few years, it’s up to you. The important point is that you know what suits you. Very early on I learned that I was impatient and aggressive. I liked to see big moves and take profits quickly. Obviously, that’s not right for everyone. But believe it or not, there are strategies that I use to make money with a short term, aggressive mindset. Without identifying my psychological needs, I was constantly trying to reconcile conflicting advice, unable to filter out what was suitable for my trading style. As a consequence, I lost money. Over time, I identified exactly what kind of trading style suits me best - swing trading. That gave me a shot to be profitable, and with time and practice, I was. Your needs will likely be different, but paper trading for three monts will help you sort those out without risking your hard-earned money.
• Read the blog. I’ll do my best to keep you in the game.

Technorati Tags: get started, investing, trading, brokers, paper trading