If you are considering trading stocks for the first time, this article should be of interest because it points out a few basic elements of trading that are essential for the trading newcomer to understand.
In using a title for this article that includes the words “stock market for dummies”, I do not wish to suggest the beginning trader is a dummy — he or she may well be smarter than I am in fact. I have used the term in the same way as successful publishers have titled their books of instruction on various subjects for entry-level readers. Similarly, this article is aimed at the entry-level traders in order to alert them to some basic stock market information they should become familiar with.
Actually, the phrase stock market for dummies, while perhaps suitable as an attention grabber, is not really a good description of stock trading beginners who are wishing to acquire knowledge, hardly a description of dummies.
First, learn how the market works
There is no shortage of basic information about the stock market. Books, magazines, newspapers, and online sources cover every aspect of trading from which a basic knowledge can be gradually acquired. Especially read up on the news and lore of the market, the views and opinions of respected traders, how to find stocks to trade, and become familiar with the jargon of the market.
I recommend the “How to Make Money in Stocks” books by successful investor’s such as William J. O’Neal, publisher of Investor’s Business Daily and Jim Cramer of TV’s Mad Money, they provide good advice for the beginner and there are also books by Peter Lynch, and others that are worth reading. The Wall Street Journal and the Investor’s Business Daily (IBD) newspapers provide up-to-date coverage on all market events.
There are Finance.Yahoo, Marketwatch, Money.MSN and others such as SeekingAlpha for up-to-date news, stock quotes, and stock specific commentaries. Many also provide free tools to set up stock portfolios and watch lists that can track stocks of interest, very useful.
A guideline for survival
A principle guideline that has been around for a very long time is to “Let the profits run but quickly cut the losses.” Old but true, it emphasizes the necessity to learn how to prevent damaging amounts of loss occurring when the position you hold does not perform as expected There will be such times but keep the losses small. The objective is to preserve working capital for use in future investments, without a strategy in place, some traders have watched their working capital dissipate entirely.
Other basic topics and guidelines to be learned include:
1. Trends and trading with the trend
2. Do not average down
3. When entering a trade, formulate an exit strategy
4. Stock charts and how to interpret them
5. About the Stop Loss
And there are many more . .
For much more on stock market topics, visit Stock Market Basics Guide and for more on the above topic, see Introduction to Trading.. This article, An Introduction to the Stock Market for Dummies is available for free reprint.