How to Buy Stocks

Day trading is buying and selling stocks within one trading day. In other words, when the stock market closes, you have no open stock positions and leave no money in the stock market overnight. Day trading is volatile and fast paced, so if you like the challenge of being able to make quick decisions based on what you have learned and practiced, intraday trading may be a good choice for you. Learning to day trade is a process and involves hours of studying, reviewing and practicing to become a proficient day trader.

It is important to first determine your stock trading strategy which is a plan of action used to trade stocks. Following a plan of action helps to keep you within set boundaries to protect profits. Learn to plan your entry and exit price levels, as well as where to place a stop loss, before entering any trade. This will accomplish two things: help you remain disciplined and protect your profits. Once you have built consistency and confidence in the system, you will be better prepared to trade stocks with limited loss.

While developing a strategy to use for different stocks, you will need to determine how much money you are willing to invest in a trade, which technical indicators to use and what they should indicate for entry and exit points. There are many useful strategies in trading; when you find one that may work well for your style of trading, take time to practice it and review the strategy so you will be able to take a quick look at a stock chart and know immediately which strategy to use. Trading stocks without a strategy limits profit potential and increases losses. Talk to other stock traders and discuss which strategies they use and the reasons why and adapt them to your own strategies in order to increase your knowledge and consistency.

Your position size should be determined relative to your account size. By keeping your position size small at first, you are lowering your risk substantially. As in any investments, there is always risk involved. It is important that the risk is calculated before entering a stock position. Accepting the risk is part of the process of trading. As you gain knowledge, confidence, and success, you can increase your position size incrementally. This reduces the emotional confusion created by a stock position that does not carry out in the direction you originally anticipated. Therefore, if you encounter a loss, it is greatly diminished by the size of the position you opened.

The use of a stop loss should be a part of every stock trader’s strategy and helps to minimize losses. Implementing a stop loss is also part of risk management. Before you enter any stock trade, you should decide at what price your stop loss should be placed in order to prevent further loss in case the stock’s price begins to go against your position. A guide for placing a stop loss, on day trades, is between one and two percent depending on the stock itself. For swing trades, a stop loss may be placed between three and five percent.

For those who are just starting out, they may tend to place a tight stop loss order or sell or cover a stock at a lower percentage, in order to capture a profit. In doing so, they only gain a very small profit while leaving a larger percentage profit on the table. When setting a stop too tight, it does not allow the stock a chance to show its ability to provide a higher percentage profit. A good practice is to learn to be a little more patient and practice using wider stops until you become comfortable.

Day traders use stock charts to interpret the movement and probable or possible future movement of a stock. This gives them a better projection of how to trade a specific stock or whether or not it is a highly profitable stock idea at all. A stock chart shows the sequence of prices and values plotted over a given period of time. Many day traders watch a one minute, two minute, three minute, and daily stock chart. As you analyze a stock, you will want a variety of views of this stocks price movement. This gives you a better idea of the overall trend. For example, look at the stocks movement over the past few days. If it looks like it is a highly probable stock trade, look at the daily stock chart and see how this stock has reacted over the past year. If you are looking to enter on the long side and the daily stock chart is in an upward trend, this may be a good stock idea. If the stock is in a downtrend, the odds are not as good for winning a higher profit. It is important to get a clear idea of how to interpret these stock charts to make informed decisions.

Learning how to read stock charts, also known as technical analysis, is a method of forecasting future price movements using mainly price and volume. Although technical analysis may not be a one hundred percent guarantee, it is highly valuable to the stock trader and is a guide to finding high probability, low risk trade ideas. It is important to learn how all the combined data, such as, time, price, volume, technical indicators, moving averages, trend lines, areas of strength and resistance, etc. play an important part in the building of these stock charts. All of this information paints a picture of what buyers and sellers are thinking. This helps the trader make a concise decision of how to handle the trade. Review as many stock charts as possible until you can immediately recognize a profitable stock trade set up.

It is important to establish chart pattern recognition. This is acquired by viewing hundreds of stock charts which imprints a picture in your mind of a highly probable set up. The more stock charts you view, the faster you will recognize a great trade idea, which will give you an edge in your stock trading. Chart pattern recognition will help you better understand what signals and chart patterns you are looking for in a high probability trade setup. Naturally, the more charts you review, the quicker you will be able to recognize that stock chart pattern while scanning through hundreds of charts searching for the perfect set up.

 It is important to trade stocks that present only the highest quality ideas. Most of these occur within the first few hours of the trading day. After that, be careful not to put your money into a mediocre stock idea and end up giving back some of your profits.

Remember, the trend is your friend. It is a good practice to keep an eye on the action of the stock market overall while you are day trading. This helps you determine when is the best time to go long or short. Dedicate one of your stock charts to either the S&P 500 or the Dow Jones. As you are looking for stocks to trade, keep an eye on that stock chart to view how the stock market, as a whole, is acting. If you are going long on a stock when the stock market is coming down, chances are, you are going to be stopped out.

Studying and reviewing your stock trades is a valuable learning method in trading. Record all of your stock trades daily and review them after the stock market closes. This daily practice gives you an advantage to help educate yourself in the procedures and focus on the areas you need improvement. It will also help to improve the management of your stock trades and improve your winning percentages. At the end of each trading day, pull up a stock chart of each trade you placed and analyze your procedures. By doing this it will help you be able to calm your emotional reactions and learn how you could have better managed the trade in order to maximize profits. In addition, it is best to set aside the thoughts of how much money you make on each stock trade while you are learning. Focus on successfully completing the procedures and your percentages of wins versus losses will help to build your confidence to carry out winning trades.

As you learn to enhance your own trading style, your profits will continue to rise due to your understanding of the system. It takes time to learn the strategies and guidelines to be able to make accurate and knowledgeable decisions, however, with the proper amount of study and practice you can become a solid stock trader and make consistent profits.

When you first begin day trading, many seasoned stock traders suggest virtual trading for thirty to ninety days or until you have reached an eighty-percent success rate. This will give you time to learn different stock trading strategies, adapt them to your personal style, allow you time to get accustom to the executions of placing stock trades and learning how to manage them.  Trading virtually may seem like a waste of time to some, but the benefits of investing the time to learn first, will pay high rewards.

The more prepared you are, the more money you will make. A pre-market routine is useful to find different trading opportunities and gives you time to plan your day. This is to help prevent spending time during market hours making new plans and instead, being able to focus completely on your trading.  First, review stocks previous day’s action. By doing so, it will give you a good inclination of the possible direction of the stocks price today. Realize, this is not a prediction, only a forecast in order to figure out how to handle the stock’s price action.

Check the news related to specific stocks, especially if the stock has had drastic moves in either direction. That is a clear indication that the stock is being news driven. Then check the news of the overall market conditions which gives you a clearer picture of what the stock market may present throughout the trading day.  As you are preparing for the current days stock trading, make a list of the stocks you are monitoring, for highly probable stock trades, also known as a watch list. This proves to be a highly successful routine as the stock trader has their research sitting in front of them instead of making highly emotional decisions during peak stock trading hours.

Trading stocks can be challenging whether you win or lose. After you learn specific techniques and become consistent with your winning positions, trading becomes mainly mental, so be sure to remain calm, unemotional, and focused. It is highly advisable to connect with other stock traders who have more experience than yourself to help increase your knowledge. Remember, day trading is a learning process so be patient and the money will come.

TradeStocksAmerica Staff

Return to Menu
Here are other articles
you may like:
Best Trading Platform
Buying Stocks Online
How the Stock Market Works
How to Buy Stocks
How to Open a Trading Account
How to Use Support and Resistance When Trading Stocks Online
Keeping Emotions in Check While Online Stock Trading
Learning How to Day Trade
Moving Averages
Stock Trading Systems
Stock Trading Tips
Technical Analysis
Technical Indicators for Online Stock Trading
Three styles of Stock Trading
TR lesson 3-30-12
Trade Management for Online Stock Trading
Stock Charts: Using Technical Indicators