I’ve covered a lot of ground on conventional investing practices such as diversification, asset allocation, indexing and dollar cost averaging. But I also like covering other aspects of investing and trading that I’ve been curious about.
I study stock trading as a hobby because I’m fascinated by the possibility of using technology, technical strategy and other techniques in making predictions about the future and interpreting history to extrapolate what could happen next for the purpose of making money. The issue, of course, is how successful you can be about using such tools to further your investment assets. Without experience, most people won’t be successful, and even with experience, there are those who will struggle as traders.
At any rate, you’ll need to start somewhere: take a look at some free resources and guides for learning about how to trade and invest. These days, online brokers and mutual fund companies have come a long way in providing top trading tools, education, resources and customer service. For some of our favorite brokerage sites, check out our Smart Money Broker list.
In at least a couple of these sites, you’ll find thriving communities of traders who share their portfolios and information with each other, as well as virtual trading platforms where you can trade without risking your own money.
Different Ways To Trade Stocks
So how do you like to trade? I’ve noted the many ways that stock traders and investors (including myself) have approached the market. Here are some profiles I’ve come across:
1. Emotional Trading
I’m going to bet that most people get their first taste of the stock market by making emotional decisions with their money. The stock market is ruled by both fear and greed, which are pretty strong emotions that can pull at your gut and play with your mind. I, for one, was an emotional investor (and trader) when I first learned how to invest. The results were far from pretty. My money was whipsawed by the markets and dissipated over the span of a few miserable trades. I saw some big losses this way. While I am less prone to this kind of market action today, there are times I have to fight through my emotions to stay on course with my investments.
2. Trading With “Expert” Guidance
Those people who don’t have much experience or any interest in the market but want to invest in it will normally turn to “experts” to help them with their investment plan. They’ll sign up with a full service broker or financial adviser to get started on stocks, then will basically hand over their funds for others to manage. Not sure I’m personally comfortable with this strategy for myself, since I’ve seen firsthand how some “advisers” have churned the stock accounts of their clients. It happens more often than you think! Instead, why not turn yourself into the expert? You can check out free online resources such as those you’ll find in this list of investment tools, or visit online brokers as I’ve mentioned above (check out our ETrade review and TradeKing review), where you’ll find free investment information as well as a stock trading community you can compare notes with.
3. Trading By The Book
When I first got started with investing, the first thing I did was to study the market. I read books, magazines, periodicals, newsletters, blogs, articles and relevant stock sites, then I put what I learned into action. This is how I figured my way around the stock market over time. As someone who’s become a DIY (self taught) investor, I’ve found that the knowledge I gained from this process is empowering! One caveat though: if you follow a newsletter’s advice (or stock picks), know that this approach carries its own set of risks. I usually absorb what a newsletter writer (financial guru) has to say, but don’t necessarily follow their advice blindly.
4. Software Based Trading
More sophisticated and advanced investors employ the use of software and tools to hone their investing and trading skills. This is one area I’d like to explore further. As I’ve mentioned earlier, online resources and software tools abound — many of them are free and available. If you’re into options, you can check out a good options brokerage for the resources needed to become a successful options trader (there’s no guarantee you’ll do well, but you have access to a trading platform and tools to sharpen your skills). You can also find educational material in sites like Morningstar.com and INO.com whose whole business focuses on investor trading and education. INO aims to serve and equip investors with tools and resources mainly in the technical analysis arena; you can subscribe to their free tools to get a dose of what they have to offer.
5. Fantasy Trading
If you’re going to fancy yourself as a trader one day, I think it’s very prudent to start out with a practice portfolio so that you can learn the ropes without having to put your money at risk, especially while you lack experience. Set up some fantasy portfolios in virtual trading platforms to gain trading experience through trial and error. Or play around with trading games and contests like those you see in sites like Zacks.com.
Created: June 6, 2009; Updated: April 27, 2011
Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 10 comments… read them below or add one }
The stock market is just too much of a russian roulette game to my liking at present, with loads of pumping and dumping going on, which leaves the small investor / speculator very vulnerable. I prefer more tangible assets and investments like gold and other commodities at present.
When buying any asset, price should be the main consideration. Most companies are attractive at some price, it’s determining what that price is that takes time and skill. It’s what most investors would refer to as fair value. Having the discipline to buy a stock at below that price and sell it when it reaches that price takes a resolve that many people don’t have.
As for the comment above regarding “more tangible assets,” I think it’s easy to lose site of the fact that you’re investing in a company, many of which own lots of tangible assets. You aren’t just buying a piece of paper and hoping it goes up. When you invest in P&G, for example, you get the value of all their plants, factories and brand names like Tide. It’s important to remember that before you say you prefer gold (obviously I prefer stocks to commodities).
so..what kind of things that we must depend on when trading stocks , is it the earning per share or the dividend per share or the profit of the company . or just making chart analysis .
These are great resources. You are right, it’s much easier to learn how to trade these days as compared to some years ago, with this kind of information more available to the masses. I’m getting my feet wet on stock trading myself, so far I’ve been enjoying it.
Online trading platforms really make it much easier to trade. I see you haven’t mentioned Thinkorswim. How do you like that platform ? I know it is bad for penny stocks but should be great for blue stocks and forex.
Lets of good information here. Finding good research is so vital before venturing into the trading world. It is so much easier now with the wealth of information available. The downside is information overload. Sometimes endless research interferes with making a choice that could have been a smart investment.
I agree with you about the whole software issue. That is advanced traders once they have moved out of the arena of emotion and bad advice from traders who are really salesmen.
However, I’d have to argue that the best trading software is by and large thinkorswim. They have amazing scanning tools and are one of the best in my humble opinion!
With S&P trading at its highs since the the Recession of 2008, do you think this would be the right time to invest or are the stock markets expected to cool down before they begin their next jump?
Thank you for the article. Personally I like, I guess what you’d consider – trading with “expert” guidance. I’ve read many investing books and honestly one of the best I’ve seen is Phil Town’s Rule #1. Unlike other books that help you to spot trends this one actually helps you select a stock – although nearly all fail the criteria he sets. And, rightly so – a good deal is hard to find!
Also, I’ve been thinking about exploring actual “expert guidance” – where in you purchase a subscription to follow a fellow guru.
Have any experience or know of any?
Thanks,
Zach
@Penny Stock Professor,
I used to purchase a newsletter to keep abreast of Bob Brinker’s market advice, but have stopped since because I was no longer confident about anybody’s views for the market in the long term. I would certainly not buy a newsletter subscription for penny stocks or anything I deem too risky at this point. I may do it for experimental purposes — perhaps for a *VERY* small portion of my portfolio that I want to gamble with. My investment philosophy has always been to follow a diversified and indexed portfolio strategy.