Are you one of the many prospective stock traders who wonders what it takes to be successful as an investor in today’s competitive, sophisticated marketplace? If so, there’s good news in that you don’t need an MBA degree or a Ph.D. in economics to get started. But you do need a few very basic tools, all of which can be learned online in a matter of days. Keep in mind that it’s not a good idea to rush through the learning phase. By diligently taking your time to acquire the core knowledge, you’ll be doing yourself a favor. For instance, it’s essential to gain a thorough understanding of central themes, namely technical and fundamental analysis. But along with those key concepts, it’s best to start out by simply getting acquainted with the language of the securities world.
Finally, you’ll want to know the mechanics of how to enter orders on the brokerage platform you choose. Fortunately, the platform owners have done a great job of covering this base. Once you sign on and create an account, it’s possible to do practice trading or what is sometimes called paper trading on one of the simulators. Here’s a closer look at the four general topics that make up the knowledge base.
Every field of endeavor has its own language. Horse racing, gambling, medicine, engineering, boxing, and thousands of other subjects have special words unique to their discipline. The market is no different. If you have never purchased or sold security before, it’s best to take the time to learn basic lingo. There are numerous websites where you can locate short dictionaries of common terms. Another way to gain an understanding of the jargon is to watch the weekend financial TV shows and write down every term you don’t understand. At first, the task will seem overwhelming, but after a few weeks, you’ll be surprised as how many new terms are in your vocabulary.
There are dozens of TI’s, also known as technical indicators. Traders use them to make decisions. There’s no need to delve into complex math, but it is important to know that one of the most important of the TI’s is called an SMA, or simple-moving-average. SMA’s are used in sports quite often in order to evaluate the average number of points scored by teams in the past five weeks, for example. Note that this is a numeric consideration, not related to the health, age, strength, or popularity of the company’s shares or the company itself.
If you intend to purchase 100 shares of either XYZ or ABC Corporation, you might look at how their 200-day SMA compares to the 50-day SMA. This comparison is a common indicator that measures whether the price is moving up or down. When the 200-day number is higher than the 50-day number, it’s apparent that the organization’s share price is below average. Price is probably headed upward when the reverse is true. Don’t worry if you don’t understand the details of the example. The point is that there are all sorts of TI’s like these that allow you to crunch a few numbers and gain some insight into the relative attractiveness of a company’s stock.
If you have friends who are involved in the foreign exchange markets, trading international currency for profit, perhaps you’ve heard them mention things like currency pairs, indicators, and pips. All that talk can sound funny to an outsider, but once you become a trader yourself, those words will make perfect sense. What they’re referring to when they mention indicators are technical measurements that assist in the decision-making process. People who trade currency pairs are fond of using forex chart patterns analysis to discover important trends and identify solid opportunities. In fact, consumers use this kind of analysis all the time in a less sophisticated way when they hunt for bargains. Looking for the lowest-priced item is another version of using a moving average of a currency price to decide whether to buy it or not.
Fundamental Analysis (FA)
When you study the inner workings of an organization, like the resumes of its top manages, how old it is, how many new products or services it has offered in the past 10 years, whether it is having legal problems with liability cases, and how its earnings-per-share figure compares to the industry average, you are engaging in a fundamental evaluation of that entity. Most successful investors use a combination of TI’s and FA to make buying and selling decisions.
Nearly every brokerage platform offers its own trading simulator. Take advantage of this chance to trade with fictitious money while you learn the rudiments of order placement, using indicators, selling at the right time, judging how big of an order to place, and dozens of other essential skills.