How to Start Investing in the Stock Market

2022-04-21 | Mary Ellen McGonagle

Learning how to invest in the stock market is a significant step to financial literacy. But you might be asking yourself, where do you even begin? And that’s a fair question because you may know that the stock market doesn’t come solely with opportunity. It also comes with risk, which can be terrifying for investors and traders alike. 

However scary it may be, the risk in the stock market is a good thing because with risk comes reward. Risk helps traders be mindful of their positions and make better decisions for their portfolios. And here at Simpler Trading, we can help traders and investors correspondingly deal with it. Investing and trading can be stressful and time-consuming. Educating yourself and keeping yourself disciplined will help with that stress and time consumption. So, let’s get into the topic and learn how to start investing. 

Is The Stock Market Right for You?

Simpler Trading has excellent resources for any investor or trader looking to get the upper hand in the market. And one of the most valuable resources they offer is The MEM Edge Report. The MEM Edge Report is my carefully researched report of the top stock picks, which I update and deliver to you twice a week. For 20 plus years, I have personally advised leading financial institutions and portfolio and mutual fund managers on some of the most promising stocks they have ever traded-in. And now, I focus on individual investors and traders looking for the right stock trades at the right time. So sign up for my MEM Edge Report today and get the guidance you need. 

Investing in the Market Video Guide

What are Stocks? 

Stocks are company-issued securities representing fractional ownership of that particular company, also known as stock shares. Every stock share is represented by a stock price proportionally correlated with the company’s value. Every stock share is represented by a stock price which fluctuates depending on demand for that stock. Oftentimes, companies with strong earnings and sales will go on to outperform the broader markets. Stocks are bought and sold on stock exchanges. The three major stock exchanges in the United States are the New York Stock Exchange (NYSE), The Dow-Jones Industrial Average (DJIA), and the Nasdaq Composite (IXIC). Investors and traders can look into other exchanges worldwide; however, that opens up traders to an entirely different type of risk. 

Categories of Stock

  • Common Stock is a type of shares of stock available to traders; common stock represents a fractional percentage of ownership in a company available to outsiders. There are also preferred shares of stock, which give the owner more rights than common shareholders. 

 

  • Preferred Stocks are a higher class of stocks and act like a company-issued bond, giving the shareholder a higher claim than common shareholders on company assets if the company goes bankrupt.

 

  • Small-Cap Stocks are companies whose valuation lies between $300 million and 2 billion. Small-cap stocks tend to be riskier but are often on a higher growth trajectory than more established companies. 

 

  • Mid-Cap Stocks mid-cap stocks have a valuation between 2 billion and 10 billion; these stocks are considered growth stocks but carry slightly less risk than small-cap stocks. 

 

  • Large-Cap Stocks large-cap stocks are companies whose valuation surpasses 10 billion or more. These stocks are established companies with well-known brand names and are usually leaders in their respective industries. 

 

  • Penny Stocks penny stocks are shares that trade below $5 per share; penny stocks are usually volatile and have a lot of negative stigmas. However, they can be excellent trades if the company is well-researched and has a fundamental or technical setup.  

 

  • Dividend Stocks dividend stocks are stocks that pay their traders and investors an income as a percentage of the total shares they own, usually every quarter.  

 

  • International Stocks international stocks are the same as common and preferred stocks. However, international stocks are listed on stock exchanges outside the United States. International stocks carry a higher risk threshold and should be researched thoroughly before trading or investing. 

What Do You Need to Start?  

Investing or trading in the stock market is relatively straightforward. The first thing every investor or trader will need is capital. It’s always best to trade with your own money and grow your portfolio. The next step for the trader to take is figuring out what brokerage account to utilize when purchasing stocks. This step can be tricky because traders can use many different brokerage accounts. You may have heard about popular trading platforms such as Robinhood; however, we can recommend the ones our traders love below. 

Platforms our traders use

Trading platforms graphic

 

Thinkorswim

Thinkorswim has a robust charting platform with a lot of flexibility in chart setups, and it’s also one of the most friendly platforms for beginning traders. The cons to thinkorswim are the functionality can slow down the trader when using a lot of data.  

Tastyworks

Tastyworks has a clean user interface; however, charting has limitations.

TradeSation

TradeStation has professional tools already built into its platform, but it also has limitations on charting and is complex for beginning traders.

StockCharts

StockCharts is the platform I use, it’s great because it offers flexibility in charting and technical analysis, but it’s not free to use. 

It would be best suited for you to look into the best platform yourself; not all platforms are created equally, some have fees, and some are free to use. You will need to conduct research and know exactly what you are picking when you start to decide what platform to use. 

Difference Between Investing and Trading? 

There is a stark difference between trading and investing when participating in the stock market. However, both methods have different strategies and offer various ways for traders and investors alike to benefit from the stock market.

Investing

Investors have a longer time horizon than traders. As an investor, you can buy, or go long on a stock or short a stock. Shorting a stock means you need the stock to go down in price to profit. Investors typically hold their investments long-term, six months to several years. Investors have an analytical approach to investment prospects where they will look into the company’s financials as a critical resource to use when making investment decisions. Below are essential fundamental data investors use to determine whether a stock is under or overpriced. 

Key Fundamental Analysis Data

  • Price to earnings ratio
  • Earnings per share
  • Revenue Growth
  • Debt to Equity Ratio

Trading 

Trading relies less on fundamentals and more on technical analysis, although both can play a part in making trades. But trading is a short-term approach to stock trading which ranges from hours to days. Traders analyze chart patterns and look for opportunities in the market through chart trends and past performance to predict future profit. However, a lot goes into trades that traders need to be aware of, such as strategies and indicators that are used to determine the type of trades to make. Below you will find the best trading indicators that traders use. 

Premium Indicators

Free Indicators

  • Relative Strength Index (RSI)
  • Moving Average Convergence Divergence (MACD)
  • TTM_Squeeze

Differences Between Stocks and Options

There are many different ways to profit in the stock market, and another popular method is buying options. Options are not a proper way to invest, as it falls more alongside trading. But, options can help investors tremendously, especially during times of uncertainty. For example, as stated before, many investors delve into trading, but they mainly do it to protect themselves from losses that can hurt their portfolios significantly. Portfolios can be impacted in numerous ways; the most common forms are adverse earnings reports or negative news that might decrease the stock price.   

Example 

Meta Platforms, formerly known as Facebook (FB), on February 3, 2022, forecasted weak revenue growth within the company, and because of that news, the stock plummeted by 25% in one day. The benefit of options comes into play by protecting their portfolio in what’s known as hedging. Hedging against stock losses through options is beneficial because options serve as insurance to the investor if the stock plummets, as in the example above.

Facebook drop chart

Is Investing Right for You? 

Learning how to invest is crucial to financial literacy; essentially, you buy companies based on their brand and financial earnings for as long as you see fit. Investing is very beneficial for retirement plans and income investing. But, if you are looking to be more active in the stock market, then trading is a strategy that you would want to venture in. While many investors and traders do both, they tend to prefer one method over the other. 

If you would like more help picking stocks, check out my MEM Edge Report. I have over 20 years of experience picking some of the best stocks traders and investors can capitalize on. I deliver the MEM Edge Report to you twice a week, which offers my expert analysis and brings you the best prospects in the market. Sign up today, and get the guidance you need from an expert.  

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FAQs on Investing in the Market

Q: How do you take a long position on a stock?

A: To go long on a stock you have to obtain an account from a brokerage firm where you will have the ability to buy stocks.

Q: What does it mean to go long in a trade?

A: It essentially means that a trader has bought stock in a company and owns their shares of stock. The trader now makes money as the stock rises. And if the company issues dividends for owning the stock, the trader can potentially collect.

Q: How often is earnings season?

A: Earnings season happens after each quarter.

Q: How do you develop a trading psychology for Investing?

A: Some of the tips to master trading psychology are: find a strategy you like and stick to it, find a good trading community, set your performance goals in years, not months or weeks, and find a mentor that you can trust and follow.

Q: What is a trade discipline?

A: In a nutshell, trading discipline is emotional discipline paired with clear trading strategy and consistence.

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