For beginners who want to learn how to trade stocks, here are ten great answers to the simple question, “How do I get started?”. 1. Open a stock broker account Find a good online stock broker and open an account. Become familiarized with the layout and to take advantage of the free trading tools and research offered to clients only. Some brokers offer virtual trading which is beneficial because you can practice trading stocks with fake money (see #9 below). 2. Read books Books provide a wealth of information and are inexpensive compared to the costs of classes, seminars, and educational DVDs sold across the web. See my list of 20 great stock trading books to get started. One of my personal favorites is How to Make Money in Stocks by William O’Neil (pictured below), founder of CANSLIM Trading. 3. Read articles Articles are a fantastic resource for education. My most popular posts are listed on my stock education page. The most popular website for investment education is investopedia.com. I also highly recommend reading the memos of billionaire Howard Marks (Oaktree Capital), which are absolutely terrific. Naturally, searching with Google searchis another great way to find educational material to read. 4. Find a mentor or a friend to learn with A mentor could be a family member, a friend, a coworker, a past or current professor, or any individual that has a fundamental understanding of the stock market. A good mentor is willing to answer questions, provide help, recommend useful resources, and keep spirits up when the market gets tough. All successful investors of the past and present have had mentors during their early days. Despite being “old school,” online forums are still used today and they can be a great place to get questions answered. Two recommendations include Elite Trader and Trade2Win. Just be careful of who you listen to. The vast majority of participants are not professional traders, let alone profitable traders. Heed advice from forums with a heavy dose of salt and do not, under any circumstance, follow trade recommendations. 5. Study successful investors Learning about great investors from the past provides perspective, inspiration, and appreciation for the game which is the stock market. Greats include Warren Buffett (below), Jesse Livermore, George Soros, Benjamin Graham, Peter Lynch, John Templeton and Paul Tudor Jones, among others. One of my favorite book series is the Market Wizards by Jack Schwager.
What sort of trading goals should I set? It’s important to set goals in our personal and business lives, and the financial markets are no different. Goals offer direction, something to aim for when trading the markets and give a sense of achievement each time a target is hit. Goal #1: risk control A lot of traders end up losing too much in the beginning on trades that did not work out as planned. One way to mitigate risk and set a sturdy risk control goal could be to set aside a percentage of your account balance, 2% for instance, on any one trading idea. This would help to reinforce the approach of playing a good defensive game in the markets – critical to longer term success. This also means you can pat yourself on the back for sticking to your risk goal even when your trades do not turn a profit. Goal #2: effort to reward ratio Another goal could be to ask how much work you are prepared to put in to analysing the marketsand finding good trades. For example, watching individual shares that make up the US S&P 500 index. One goal could be to review the charts for each share every month. So 20 trading days in a typical month would give a goal of looking at 25 charts a day at least, in order to hit the monthly goal. You may only watch a handful of markets – such as the major forex pairs – but you could set yourself a goal of reviewing these markets for half an hour every Monday, Wednesday and Friday to keep you abreast of any opportunities. Doing one's basic groundwork when trading is important, and any time spent scanning the markets can be part of a defined trading goals strategy. Goal #3: reviewing how the trades turned out All traders find it useful to spend some time reviewing how their trades turned out. Even experienced traders will agree that learning about the markets never finishes. Setting time to look back on why you made certain trading decisions over the past month, how the trades turned out and what you could have done better can be invaluable in evolving a strategy that suits your individual trading personality. Committing to spend a couple of hours every month to go over old trades really will be time well spent and could deliver real returns for future trades. Goal #4: setting profit goals It is important to set realistic profit targets. Remember that even successful hedge funds and fund managers struggle to make more than, say, a couple of per cent a month on a consistent basis. If you are realistic about the sort of returns you are expecting, you won’t end up putting too much pressure on yourself for every single trade, and this should help reduce the stress of trading and have a corresponding impact on your results.