When you decide which business cycle the economy is currently in you can begin researching for a trade. It is better to have some sort of a system in place that will be used ahead of each trade. Here is a straightforward five step formula to help get you on track.
Five Steps to Investing Online:
1. Locate a stock This is the most obvious and most tricky phase in stock trading. With well over 10,000 stocks to trade a good rule of thumb to ponder is time of the year. For example, as I write this, it is the beginning of spring. It would make sense to think about stocks that customarily make runs, or fall if you are bearish, at this time of year.
2. Fundamental Analysis Many short term traders may argue with the need to do any fundamental analysis, though knowing the chart patterns from the past and the news concerning the stock is relevant. An example would be earnings season. If you are thinking about playing a stock to the upside that has missed its earnings target the last 3 quarters, caution may well be in order.
3. Technical Analysis This is the part where indicators come in. Stochastics, the MACD, volume, moving averages, RSI, CCI, support levels, resistance levels and all the rest. The batch of indicators you choose, whether lagging or leading, may depend on where you get your education.
Keep it simple when first starting out, using a lot of indicators in the beginning is a ticket to I’m a loser concert. Get very comfortable using one or two indicators to start with. Understand their ins and outs and you’ll be sure to make better trades.
4. Chart your picks Once you have placed a few stock trades you should be managing them properly. If the trade is intended to be a short term trade watch it closely for your exit indicator. If it’s a swing trade, look for the indicators that inform you the trend is shifting. If it’s a long term trade remember to set weekly or monthly checkups on the stock.
Use this time to keep abreast of the news, decide your price targets, set stop losses, and watch other stocks that you may want to own also.
5. The larger picture As the adage goes, all ships rise and fall with the tide. Being aware of which sectors are picking up piles the chips in your favor. For example, if you are long (expecting price to go up) on an oil stock and most of the oil sector is rising then more likely than not you are on the right side of the trade. Several trading platforms will give you access to sector-wide information so that you can get the education you need.
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