How to Start Trading Stocks in 2020

Thu Aug 27, 2020, 02:52 pm | by Delaney | No comments

For many people, now is a great time to start trading stocks while the market is volatile. Trading stocks might seem intimidating for some, but in this guide, we’ll break it down into easy-to-follow steps.

  • Is Trading Right for You?
  • Education and Paper Trading
  • Choose Your Brokerage
  • Research Stocks and Start Trading

Step 1: Is Trading Right for You? 

The first step to start trading is asking yourself if trading is right for you. Get down to the reason why you want to start trading. 

Trading stocks comes with risks, so you need to make sure you are willing to take those risks and that you have extra money that you are able to use. Don’t risk money you cannot afford to lose. If you don’t think you’re willing to take on risk, then trading might not be right for you.

You don’t have to start out as a full-time trader. You can start out small to build your skills and work up to a larger account. 

Step 2: Education and Paper Trading

Before trading, you need to do lots of research and education. Learn everything you can about the markets so you don’t make any mistakes that could hurt your account. There are a ton of free resources available, as well as premium paid courses. Your broker may offer educational courses and paper trading accounts, as well. See the next step for choosing your brokerage.

Paper trading is a great way to get started, because you’re not risking real money, and can get an idea of how you’re strategy will play out. However, since it isn’t real money, you may be more likely to take bigger risks than if you’re trading with real money. 

Some of Benzinga’s education offerings include: 

At this step, you’ll also want to narrow down what trading style and strategy you want to focus on. New traders often find the best success with choosing one strategy and sticking with it. This way, you can perfect it and get really good and consistent.

Styles include: 

  • Day Trading: Buying and selling a stock on the same day with no intention to hold overnight. 
  • Swing Trading: Trade lasts longer than one day and less than a few months. 
  • Scalping: A fast-paced style of day trading that aims to get out of trades very fast and make small profits adding up a larger amount of profit. 

Within these trading styles, you can find a wide variety of strategies, including opening gaps, momentum, breakouts, and more. 

Read More: Beginner’s Guide: How to Start Day Trading

Know your risk! Knowing the risk of trading will help you make more educated trading decisions. Risk can come in the form of a trade going bad (lose money instead of making money), low liquidity (can’t buy or sell a stock fast enough to get the ideal stock price), and even technical difficulties.

The general rule for risk is to never risk more than 1% of your account on a single trade, or no more than 3% of your account for your total trades. However, you must also consider how much you yourself are willing to risk. 

Read More: What to Know About Day Trading

Step 3: Choose Your Brokerage 

A brokerage is a must when trading stocks. This is the platform that will help you execute your trades. There are a ton of options available to choose some, each with their own pros and cons. Your decision may be based on your trading style and strategy, as some fit different strategies better than others. Points of consideration include: 

  • Speed of Trade Execution: When day trading and scalp trading, this is very important. 
  • Costs: Many brokerages nowadays are commission-free, but you will want to look into any other costs or potentially hidden charges.
  • Compliance: You’ll want to make sure your broker is regulated by a financial authority, like FINRA. 
  • Customer Support: When you have an issue, you’ll want to make sure your broker has excellent and accessible support. 
  • Platform: What tools do they offer in their platform? Do they have advanced charting, scanners, or other tools that would be helpful? 
  • Educational Tools: Do they offer free online education or a paper trading account?  

Step 4: Start Trading

Once you’ve opened and funded your account, it’s time to start trading. 

How you do this will be based on your trading style and strategy, but it will begin with researching stocks and creating a watchlist. Looking at the news, SEC filings, or using Screeners and Scanners is a great place to start. When you’re a beginner, you’ll want to start out slow and only use the money you can afford to lose. A common recommendation is “trade what you know.” For example, if you work in the tech industry, maybe you focus on trading tech stocks. 

When you start out the day, make a trading plan and stick to it. Dealing with money can be very emotional, especially with the rapid movement of some stocks. Know what stocks you’re trading, what your exit price target is, and figure out your stop loss so you don’t suffer massive losses.

Final Thoughts 

Trading can see complicated, but it doesn’t have to be. You don’t have to start out as a full-time trader. Start out slow, educate yourself, and simplify your strategy.