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How to Become a Stock Trader: An Introduction to Stock Trading Strategies

How to Become a Stock Trader: An Introduction to Stock Trading Strategies

Trading for Beginners - Charlie Munger – How To Invest - Investment Career

First Published: 1. August, 2022
Last Updated: 8. December, 2022
Fact-checked by Adrian Müller

How to Become a Stock Trader: An Introduction to Stock Trading Strategies

Online trading has made stock trading accessible to everyone. It’s relatively easy to learn but hard to master. That’s why not everyone succeeds as a stock trader. This is why we have created this complete in-depth guide on how to become a stock trader: an introduction to stock trading strategies.

Stock trading isn’t rocket science. You can also be a stock trader with the right strategy and perseverance. The best part is a degree isn’t necessary either.

Table of Content

How Do You Get Started As A Stock Trader?

A typical stock trader buys and sells company stocks. There are two different ways to do it. You can either work for a firm or work independently. It depends on which one works for you.

But before diving into the strategies, you need to understand the first steps of becoming a stock trader. You might think that all you need is some capital to get started. While that’s true, initial sorts of ‘housekeeping’ steps are also crucial if you want to become a successful stock trader.

Do A Thorough Self-Assessment

Before you start understanding stock trading, you need to understand yourself. This might sound like basic advice, but it’s very important. Stock trading is not only a profession but also a lifestyle.

You might be a mathematical and analytical person who has financial knowledge. But if you don’t know yourself well or don’t know exactly what you want, you might find it challenging to thrive in this field.

So, start by doing a self-assessment. It’ll give you an excellent reference to start from. What’s your knowledge of the stock currently, how much do you understand about psychology, and are you entrepreneurial? You’ll need all these qualities to become a successful stock trader, and the reward is worthwhile.

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Understand the Market

You’ll also need to understand the market as well. You aren’t expected to have complete and in-depth knowledge of every nuance when you’re a beginner. But a solid foundation is necessary when investing your hard-earned money.

It is invaluable to understand how the market works, its fluctuations, margin requirements, and the market’s reaction to the news. Knowledge will be your superpower and pay dividends throughout your stock trading career.

Have a Trading Strategy

Setting up a trading strategy is also very crucial. You don’t want to go at it blindly. No strategy is completely foolproof. But a good base strategy will give you a framework. This will also help and direct your decision-making process.

Having at least two established strategies is pretty standard. You can have one as a backup and one as your primary strategy. We’ll talk in much more detail about stock trading strategies later.

After you have a working strategy, it’s time to integrate it well. A good strategy will only be useful if you can execute it properly. For that, you’ll need discipline and resilience. With the right resource, like Trading for Beginner, where you’ll find all kinds of tips and discussions on stock trading, you’ll hit the ground running.

Get Sufficient Capital

Then you’ll, of course, need to arrange the capital. You can’t start stock trading without sufficient capital. But the keyword here is sufficient. You see, losses and wins are simply part of the game. You can’t predict or anticipate it with 100% certainty.

You might lose on your first 3 trades in a row. But you could also make it all up with the 4th trade. That’s why you need to gather sufficient capital to have some cushioning. There’ll be risks, and you’ll need to handle those.

Also, some strategies we will discuss soon require you to have a certain level of capital in your account.

Trading beginner - Plus500 -white

Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.

79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

7 Effective Stock Trading Strategies You Should Know

As a stock trader, your strategy is your arsenal. Every successful stock trader has a set of strategies they follow that has worked for them. Here’s the thing, though, not every strategy will work for everyone.

That’s why understanding how you like to work is so crucial here. It can dictate which strategies you choose to go with. With more experience, you’ll be able to iron out your strategies and pick one that’s right for you.

1. Invest With Capital You Can Afford to Lose

This strategy might sound a bit counterintuitive. But if you’re a beginner, your initial investments might not turn out well. Or it can turn out fantastic. There’s no sure shot here.

That’s the beauty of it. But the bottom line is it can go either way. That’s why one strategy is to continually invest and buy stock with money you won’t need for 5 years at least. Sometimes there can be penalties for pulling out investments early.

With stock trading, patience is vital. Your investment needs to weather a market’s ups and downs before you can start to see some gains. That’s why only investing and buying stocks with the cash you won’t need for a long time is a good idea. That way, your capital won’t be tied up somewhere.

2. Trade The News

Trading the news is a term used by stock traders, which means taking advantage of opportunities as they arise in the market. Stock markets are pretty special. They have a sustained upward trend.

But there can be periodic downs that can throw many traders off. That’s why knowledge is essential and why you should trade the news. That way, you’ll be well-informed and make educated decisions on it. A good stock trader makes money no matter what.

Most news that moves or impacts the market is scheduled. You can use this to strategize your moves. This will give you an edge over simply reacting to it. You can be proactive with your stock trading.

The news doesn’t affect all asset classes similarly, either. One news event might be good for one asset class or bad for another. You can use it to hedge your portfolio. Traders usually segment the news into two broad categories.

You have your recurring news. These are periodic news released by scheduled and move markets. The other type is unexpected news. These are one-time news that happens unexpectedly.

When trading the news, you should know the dates of important events and avoid sudden reactions or knee-jerk reactions. Have a calm mind and think strategically.

3. Limiting Active Trades

Active stock traders should take about 10% of their portfolio. This way, you won’t need to depend on the success of the companies you bought stocks of. That can be changed quickly by any unexpected news or even a regulatory change.

It has been shown that active stock trading strategies, which try to beat the market, usually do poorly compared to passive strategies.

With that said, you can still do active trading, however. But you’ll need to learn the right way to do it. There are courses and educational materials on active stock trading that you can use. Those will be very helpful.

4. Buy Low And Sell High

Perhaps this is one of the best strategies you’ll use if you’re a beginner. It’s a fundamental way of making gains, but it’s not easy to execute. The basic idea is simple. Buy shares when the price in the market is falling and sell when it’s rising.

But there’s always the question of how long to wait. In other words, how high should the price be when you decide to sell? Many traders sell the shares when it’s just a little bit higher than their original buying price.

This will give you some returns. But it won’t give you the large payouts you might have gotten if you held onto them longer. So, try holding on to the shares longer and selling when the price is substantially high.

Don’t ignore rationality, though. You shouldn’t expect the price to be triple or quadruple the original price for every stock. So, you must strike a good middle ground for it.

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5. Intraday Trading Strategy

An intraday trading strategy is also fantastic for stock trading and works for experienced and novice traders. With this strategy, an investor buys and sells the shares on the same day before the closing hours.

You can hold the stocks for hours or even minutes. You can also hold them more than once in a single day. An important part of intraday trading, also called day trading, is buying two or three very liquid shares.

An excellent short-term strategy will complement intraday trading nicely. You should have a target for the entry level and price. Since it’s all done before the market’s closing hours, many traders tend to sell early, even if there’s a tiny price increase.

This can lead you to miss out on possible large profits that you would have gotten with large price increases. Having a balance of $25,000 is needed to actively day trade.

A benefit of day trading is you can capitalize on the immediate volatility of the market. You also minimize your risk for your capital. However, due to the nature of day trading, you’re more likely to pay more trading fees. It also needs more time and attention from you.

If traders can execute day trading strategies well, it can undoubtedly be one of the most exciting and fast-paced ways to trade stocks.

6. Value Investing

Using the value investing strategy, you can set yourself up to buy a unicorn share. In this strategy, traders usually aim for stocks trading for less than their intrinsic value.

The price will likely rise, and traders will hold on to these stocks until it does. You need to put in the work here. As a trader, you’ll need to identify the stocks that the market could be potentially underestimating.

However, to use a value investing strategy correctly, you need to do your analysis. Following the herd won’t work. If you were to ‘follow the herd,’ you’d also underestimate the stock. It requires some patience, and you need to be diligent.

Trading beginner - Plus500 -white

Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.

79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

7. Positional Trading

A positional trading strategy is great for those who love to play the long game. In this strategy, a trader will hold onto a security for a long time. The idea is that the price will increase over time, and that’s how you’ll profit.

You can use fundamental analysis with this strategy to make the correct decisions and identify the right stocks. It’s a form of analysis that figures out the stock’s real value. You can also think of it as the stock’s fair market value.

Some stocks trade at higher or lower than their real value. Fundamental analysis can be used to identify these stocks. You can read more on fundamental analysis here.

Any short-term market trends or complications are not that important to keep in mind, especially since the asset is held onto for a long time.

Do You Need A Degree To Become A Stock Trader?

Technically, you don’t need a degree to become a stock trader. The information you need can be learned from reading books and websites, like Trading for Beginner. As a stock trader, you should also talk to the right people who are experts in this field.

The information is out there. You need to be a sponge and soak it up. Do that, and you’ll be well on your way to becoming a successful stock trader.

A degree doesn’t hurt if you have the option. It can help you get the right skills in a more structured way. But either way, you’ll need to put in the work. You’ll do a lot of learning on your own as well.

However, you might need special licenses or certificates depending on what you want to do in the stock trading field.

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Wrapping Up

There you have it. Now you should have a good idea about how to become a stock trader: an introduction to stock trading strategies. A beginner needs to go through the natural process. Don’t rush, and try to learn the beginner’s strategies first. If you want to learn more about investing and trading, visit us today!

About the author – D. Schmidt

I’m a German stock trader who has lived around the world. I travel extensively and believe that my experiences give me a unique perspective on global markets. I love trading! It’s always exciting to see what happens next. My goal is to help people understand the game so they too can enjoy it to the fullest. In this blog, I will share some tips and tricks that helped me along the way.
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