How to Invest in the Stock Market:
1. Build up a cash cushion.
One of the biggest mistakes beginners make when investing in stocks or any investment is tying up cash they will need down the road. This is something I have done myself! In order to prevent this, you want to build up a cash cushion that will cover all of your expenses for the next 6 months. While this may seem excessive, there is nothing worse than selling your position in a down market simply because you need the money.
2. Decide on a broker and open an account.
Most investors looking to trade individual stocks will opt for an online discount stock broker. A few examples are Etrade, Scottrade and Charles Schwab. Online discount brokers are typically far less expensive than a full service broker. Each online discount broker has a different commission structure and minimum deposit requirement. You want to familiarize yourself with the structure of each broker and choose the one that best suits your needs. You also want to consider what documentation will be needed in order to open the account.
3. Fund the account.
Once your have completed the first two steps on investing in the stock market, you will want to fund your trading account. This can be done by a direct deposit from a bank account, mailing in a check, wiring money via western union or depositing cash at a local branch. Remember, this is money you will not need because you saved up enough to cover 6 months of expenses!
4. Decide on what you will invest in.
There are a number of different investment vehicles. A few examples are Stocks, Bonds, ETF’s. Mutual Funds and CD’s. You will want to take some time to educate yourself on each and decide which one best suits your needs.
5. Develop a trading strategy.
Each investor has his own unique trading strategy. A few examples are technical stock analysis, fundamental stock analysis, buying dividend stocks, buying penny stocks, swing trading stocks, day trading stocks, position trading stocks and many more. You want to educate yourself about profitable trading strategies and decide which works best for you.
6. Familiarize yourself with the trading platform.
This step is very important. Before you buy a position in a stock, familiarize yourself with the interface of your online broker. You want to know what each order type means as well as how to sell your position. Trust me, ask any investor and they can tell you a story about doubling their position while attempting to sell or accidentally selling because they didn’t understand the order type.
7. Start a watch list.
After you determine what your individual stock market strategy is, start a watch list of stocks in that sector. You will be looking for an entry point based on daily or weekly trends. You can use websites like Yahoo Finance to build a watch list and even send alerts to your phone.
8. Enter a position.
Once you see a buy signal from one of the stocks on your watch list based on your trading strategy, you will enter a position.
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.