Online Stock Investing: How to Survive and Thrive
Stock trading has changed a lot in the last two decades. Back in the mid-1990’s, right before people figured out you could do almost anything with the Internet, the only way to access the market was through Wall Street and a handful of high-falutin’ brokers. What actually transpired in the trading pits was mysterious and off limits to the general public. To buy or sell a stock required a phone call to a broker and a wait of what seemed like eons before the transaction was complete.
But then online brokerages arrived complete with computerized trading that provided instant access (for better or worse) to the general population, allowing anyone to sit at the kitchen table and crank out dozens or more trades daily with nothing more than a few clicks of the mouse. It’s difficult, though certainly not impossible, to make good money trading stocks online. Here are a few tips to get you headed in the right direction.
Pick a Trading Style
Some people love to dip in and out of the market throughout the trading day, while others prefer to take a position and hold it for weeks or months at a time. The truth is you may not even know your personal trading style until you start trading. No problem. Once the trades start flying fast and furious you’ll figure out pretty quick whether you like the frenzied approach of a day trader or the more sedate approach of a buy-and-hold investor. Make sure that your trading style matches your lifestyle or expect plenty of frustration. Day-trading requires long hours at the computer, a reality that is manna from heaven for some and pure torture for others.
Pick a Broker
There are dozens of credible online brokers to choose from. The perfect one for you depends a lot on your trading style. Day-traders need a solid, high-speed, direct access connection, while those who hold positions longer can do without most of the bells and whistles. Keep in mind that every trade you make generates a brokerage fee of some sort, though the amount is much less than in the “good” old days before the industry underwent a forced decentralization. Obviously, day-trading is the most expensive way to go about it. It will become apparent quickly whether or not you’re getting enough out of each trade to turn an overall profit.
Learn Risk Management
Hopefully this won’t be too much of a shock to your system but trading strategy isn’t the most important thing a new online stock trader needs to learn. That may be counter-intuitive but it’s true. There are literally dozens of profitable strategies IF you implement proper risk management. Properly managing your market risk is not complex, but many people find it requires an incredible amount of discipline. Different gurus promote different percentages but the general idea is the same. The following numbers are for illustrative purposes only.
Properly managing your risk means to never venture more than a 3 percent of your trading account on a single trade or more than 8 percent in total of all your open trades. It doesn’t matter how juicy a potential opportunity looks. If you’re maxed out on risk, don’t take it. How do you manage exposure? Stop losses! Never trade naked – without a stop loss, that is. The market can turn against you hard, fast, and without warning. Without a stop loss, you could lose your entire account in a dishearteningly small number of minutes.
There’s an old saying that goes, “If you think education is expensive, try ignorance.” Professional traders go to school for years in order to learn the ins and outs of the market. Does it make sense that you should one day decide to jump in and be suddenly successful? This doesn’t mean you need to get a finance MBA from Harvard but take advantage of free or reasonable priced online resources to learn what you’re doing. Probably the first step is to find one of the many available online forums and ask questions when you get stuck. Most traders are more than happy to offer advice to newbies. Forums are also a great place to find support in your trading endeavor.