The ever-changing world of dealing in stocks has always interested me. When I started stock market investing for the first time five years ago, I learned that anyone can get rich with the right knowledge and plan. My way of planning my finances has changed because of this exciting trip.
Although it may seem hard to begin trading stocks, I have found it to be quite simple. Whatever your goal is—saving for retirement or making money without doing anything—the stock market has a lot to offer. Looking forward to sharing what I know and helping you easily grasp the fundamentals of trading stocks. We will discuss how to appropriately manage risks and make smart business decisions.
Learning the Basics of Trading on the Stock Market
Let me tell you about my trading journey to help you understand how the stock market works.
What are stocks, and how do they work?
I can buy and sell stocks on stock markets, which are like holding shares in a company. When I buy stocks in a company, I become a part-owner of that company and can vote on choices and get payments. The value of my investment changes based on how well the company does, the market, and the economy. I’ve learned from years of dealing that stock prices tend to go up for companies that are doing well and down for companies that are having trouble.
Important Words to Know for the Stock Market
From my trade experience, I know these key terms are important for new investors:
- A bull market is when stock prices keep going up, like they did in 2021.
- Bear Market: When stock prices drop a lot, like they did for me in 2020.
- Dividends are regular payments that companies make to people who own stock.
- Volume says how many shares are moved every day.
- Market Cap: How much all of a company’s shares are worth
This is the price-to-earnings number I use to figure out how much a stock is worth.
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- Risk is how quickly the price of a stock changes.
- A number of different types of stock markets
- I trade on these big stock markets all the time:
- NYSE: I buy and sell blue-chip stocks on the New York Stock Exchange.
- NASDAQ is where I sell most of my tech stocks.
- LSE: The London Stock Exchange is where purchases in the UK are made.
- TSE: The Tokyo Stock Exchange so you can get a feel for the Asian market
Each market has its own trade hours, rules for how it works, and companies that are mentioned. Knowing about these differences helps me make good plans for my trade approach.
How to Start Investing in Stocks?
After learning the basics of selling stocks, it’s time to start investing in real life. Here’s how to start investing.
Getting clear on your investment goals
Before I bought my first stock, I made a list of clear financial goals. Some goals are to save money for retiring in 20 years, get enough money for a down payment on a house, or make passive income through shares. Each goal affects how I invest, how long I invest for, and which stocks I choose. For long-term goals, I invest in growing stocks, and for regular income, I invest in stocks that pay dividends.
How Much Risk Are You Willing to Take?
Every financial choice I make is based on how much risk I’m willing to take. When I think about my age, income, financial obligations, and investment plan, I can figure out how comfortable I am with market fluctuations. Tech startups and other high-risk projects can pay off big, but they also have a lot of ups and downs. To keep my portfolio balanced, I hold safe blue-chip stocks that I’m willing to take some risks on.
Making a budget for trading
The 50-30-20 rule helps me decide how to spend my trade budget. Half of the money goes to necessary costs, thirty percent to extra spending, and twenty percent to savings. I only spend money that I can stand to lose, and I keep enough in a backup fund to cover my costs for six months. No matter how the market is doing, I always spend the same amount each month. This helps me make buying choices based on facts instead of feelings.
Important Tools for Studying the Stock Market
I’ve learned that the right research tools can make the difference between trade decisions that work and ones that don’t. These are the most important tools I use to study the stock market.
Indicators for Technical Analysis
- I use patterns and charts to find market trends and guess how prices will move. These are my go-to tools:
- You can use line charts and candlestick patterns to see how prices are changing.
- To find long-term trends, use Simple Moving Averages (SMA).
- Use exponential moving averages (EMA) to track short-term price changes
- Relative Strength Index (RSI) to find situations where prices are too high or too low.
- To prove a trend, use MACD (Moving Average Convergence Divergence).
- Methods for Fundamental Analysis
- To judge a company’s financial health, I look at these key indicators:
- Price-to-Earnings (P/E) measure to compare the value of a stock
- Rate of growth for earnings per share (EPS)
- Use Return on Equity (ROE) to figure out how profitable a business is.
- Debt-to-Equity Ratio to Check for Stability in the Economy
- Free study of your cash flow
- Comparison of market capitalization with peers in the same field
- Bloomberg, Reuters, and other financial news sites
- Finviz TradingView is a tool for screening stocks.
- Check out the SEC EDGAR database for company financial records
- Reports from Morningstar that look at an industry
- Market info comes in real time
- Transcripts of earnings calls and investor meetings
How to Pick the Best Trading Platform?
A very important step in your financial journey is choosing a trade tool. I’ve learned that having the right tool can make the difference between dealing with confidence and getting lost in the market.
Trading sites that are popular in the UK
- I’ve tried a number of selling sites in the UK and found these to be the most reliable:
- eToro has social trading tools that let me copy traders who are already doing well.
- The study tools and teaching materials that Hargreaves Lansdown offers are very good.
- Trading 212 stands out because it lets you trade without paying any fees.
- The Interactive Brokers service meets my needs for getting into foreign markets.
- Plus500 offers an easy-to-use tool for buying CFDs.
- Fees and commissions for trading: A comparison
- I keep an eye on these main costs across all platforms:
- The cost of each deal is between £0 and £11.95.
- Deposits start at £0 and go up to £500.
- Platform fees every year: 0.25% to 0.45% of stock value
- Fees to change money: 0.15% to 1.5%
- Fees for withdrawals range from £10 to £25.
- Fees for not using the platform: Some sites charge after 12 months.
- Two-factor security keeps my account safe.
- SSL security keeps my private information safe.
- My money stays separate from platform assets thanks to segregated client funds.
- FSCS protects up to £85000 thanks to FCA rules.
- Platform stability is maintained by regular security audits
- Using biometrics to log in makes your account even safer.
- Putting together your first investment portfolio
Strategies for Diversification
I make sure my account is well-balanced by putting money into stocks, bonds, and goods from different industries. Parts of my plan are:
Putting money into the tech, healthcare, banking, and consumer goods industries as a whole
60% of the money will go to local stocks, 30% to foreign markets, and 10% to bonds.
- ETFs that follow market benchmarks, such as the FTSE 100
- Putting money into REITs to get real estate exposure without buying property
- Putting money into assets like gold to protect against inflation
- Growth Stocks vs. Blue-Chip Stocks
- I keep a mix of both types of stocks to get a good balance of security and growth potential:
- Blue-chip stocks:
- Well-known brands like Apple, Microsoft, and BP
- Regular payouts of dividends
- Records with less fluctuation
- Strong places in the market
Stocks that grow:
- New tech, biotech, and green energy businesses
- Potential for more growth
- Needs a higher risk tolerance
- There are no steady profits.
- Advice on Where to Put Your Money
- My tried-and-true distribution plan is based on:
- Investing based on my age (100 – my age in stocks)
- Setting aside 15% of your monthly income to invest regularly
- Rebalancing the assets every three months
- Using pound-cost averaging to lower the risks of trying to time the market
- Keeping 5% in cash for market chances
- Putting in stop-loss orders 15% below the price you bought something
- Putting in limit orders to buy stocks at certain prices
- This markdown style gives you organized, clear information that is useful for you, with personal thoughts and real-life examples.
How Trading Orders and Execution Work?
Trading orders are the directions I follow to make sure that my stock market trades are accurate and under control.
Orders to Buy and Orders to Sell
Trades are carried out at the current price by market orders. I use them when I need to make a trade right away, even if the price changes. I can set a particular price to buy or sell with a limit order. Limit orders help me make sure I don’t pay more than my goal price for stocks that move a lot.
What’s different:
- Market bids are carried out right away at the present price
- Limit orders: Only carry out at a price that is set or higher.
- Market orders have a better chance of being finished.
- Limit orders let you better control prices
- Orders to Stop Loss
- Stop-loss orders keep my stocks from losing a lot of money. When the price of a stock goes below a certain level, these orders sell it immediately. Most of the time, I set my stop-loss at 10-15% below the price I bought something. Using this approach has kept me from losing a lot of money when the market went down.
Levels of stop-loss examples:
- Safe: 5 to 8 percent less than the purchase price
- Not too much: 10-15% less than the selling price
- A lot of money: 15-20% less than the selling price
Orders to Make Money
With take-profit orders, I can sell stocks when they hit my goal price and lock in my winnings. These orders were made based on my study and my goals for making money. Set my take-profit orders for my growing stocks at 20–30% above the price I bought them.
- 5–15% profit goal for short-term trades
- 15–25% profit goal for medium-term positions
- Long-term investments: aim for a profit of 25% or more
Taking care of investment risks
I’ve learned that dealing in stocks successfully takes careful risk management using tried-and-true methods and keeping an eye on your account all the time.
Rebalancing the portfolio
To keep my goal asset mix, I adjust my account every three months. This means selling stocks that are too heavy and getting ones that are too light. I rebalance when any asset class moves more than 5% away from its goal. This is called the “5% rule.” By adjusting recently, I was able to take gains from tech stocks and put them in areas that were cheap.
Strategies for Managing Risk
- When I trade, I use a number of risk-control methods, such as:
- Setting limits on the size of each trade at 5% per stock
- Putting in stop-loss orders 15 to 20 percent below the purchase price
- Keeping 60% in blue-chip stocks to keep things stable
- Keeping 10-15% of cash on hand in case of chances
- Spreading your money around 8–12 different market sectors
- Following hot stock tips without doing any study
- Selling out of fear when the market goes down
- Putting too much money into one stock or area
- Using borrowing or excess money to trade
- Making business choices based on how you feel
- Not having clear plans for getting in and getting out
- What Trading Stocks Means for Your Taxes
When you trade stocks, you have to pay taxes, which is something I’ve learned how to handle on my business trip.
The UK has a capital gains tax.
When I sell my shares and make more money than the yearly tax-free limit, I have to pay Capital Gains Tax. At the moment, £12,300 a year is the tax-free amount. People who pay the basic tax rate pay 10% CGT on gains over this amount, while people who pay the higher tax rate pay 20%. To stay within the rules and get the best tax deal, I use a worksheet to keep track of my income.
Tax-Friendly Investment Accounts
I get the most out of my investments by using tax-advantaged accounts like ISAs and SIPPs. Savings up to £20,000 a year are tax-free in an ISA because they are not subject to income tax or capital gains tax. When I put money into my SIPP, the payments are tax-free at my percentage rate, and the money grows tax-free. By lowering my tax bill, these wraps help me get rich faster.
- Needs for Keeping Records
- I keep thorough records of all the stock deals I make, which include:
- When and how much to buy
- Dates and prices of sales
- Stamp tax and deal costs
- Income from dividends received
- Things that companies do, like stock splits
- Because HMRC says so, I keep digital copies of contract notes, broker accounts, and reward tickets for 6 years after the end of each tax year.
- Making a plan for long-term investments
I’ve learned that if you want to invest in stocks successfully, you need a clear plan that fits with your financial goals. Here is a tried-and-true way for me to get rich through long-term investments.
How to Invest: Growth or Value?
Both growth and value stocks are important to me because I want to keep my investments in check. If the price of your shares goes up, growth stocks like Amazon and Tesla can give you a lot of money back. Even though they have strong assets, value stocks like Johnson & Johnson and Coca-Cola trade below what they’re really worth. Half of my purchases are for growth and the other half are for value. This gives me more chances and lowers my risk.
Averaging Dollar Costs
Dollar-cost averaging lets me put £500 away every month, no matter what the market does. When the price drops, this plan helps me buy more shares. When the price goes up, it helps me buy fewer shares. This makes the market less unstable and stops buyers from making choices based on how they feel, from what I’ve seen. Even though the market has changed, this approach has worked well for five years.
Plans to reinvest dividends
Dividend retirement plans (DRIPs) help me get more money back over time. My stocks that pay dividends, like BP and GlaxoSmithKline, instantly buy more shares with the money I get from them. This approach has helped me get 15% more shares every year without spending any extra money. My investment grows like a snowball thanks to DRIPs and the power of compounding.
How to Do Well in the Stock Market?
I’ve told you about my messy trip through the stock market to help you get started on your own way to making more money. People who are good with money can make a lot of money by selling stocks. All you need is the right information and a plan.
The stock market is full of possibilities, whether you want to save for retirement, make idle income, or get rich. Using the tips and methods I’ve given you, I want you to take that first step. Now is the start of your business journey.