When to Hold ‘Em… and When to Fold ‘Em
Dear Penny Stock Millionaire,
Yesterday, I told you I would give you all the information that you needed to start your trading year off on the right foot.
Whether you’ve been trading for years with limited success or you’re brand new to trading, I’ll lay out the foundational knowledge you’ll need before you start putting money into the market next year.
How to Buy Stocks
What exactly do you need to get started buying and selling stocks?
Not much, actually. To execute trades, you need a brokerage account. You’ll also want some trading software to help you find and track stocks. Often, these two things are available in a single platform.
Learning how to buy stocks is a cinch. It’s as easy as placing an order on GrubHub.
The hard part is actually making smart decisions about what stocks to buy and when.
That’s why I’m also a big fan of the idea that the most important part of learning how to buy stocks is investing time and effort in amassing knowledge about the market.
Knowledge is power when it comes to the stock market. The more you know, the better informed your decisions will be over time.
When to Sell Stocks
When should you sell stocks? If only there was a simple answer. Ultimately, this is something you’ll need to figure out for yourself.
A trading plan can be extremely helpful in this regard. This is a plan where you determine your entry and exit points before you go into a trade. This can help you know when to take profits… and it can also tell you where to cut losses.
How Much Do You Need to Start Investing?
That depends. It’s possible to get started with some brokers with just a few bucks. Others will require thousands of dollars or more.
You don’t necessarily need a huge account to start trading low-priced stocks. This is one reason why it’s appropriate for people with small accounts.
For example, my most profitable student to date started with an account of $1,500 and now reports over $8 million in profits. His results aren’t typical, but it proves that a huge account isn’t vital for success.
It also depends on how you want to start. For instance, to short sell, you need $2,000. To buy into a mutual fund, you might need anywhere from $500 to a few thousand to get started.
My best advice? NEVER put in more money than you can afford to lose — there are no guarantees in trading or any type of investing.
How to Read Stock Charts — Step By Step
A stock chart offers you a visual explanation of a stock’s price movement over various periods: daily, weekly, monthly, and yearly.
Understanding a stock chart is an important step toward understanding the trade, so it’s super handy to know how to read them.
Here’s some of the key information you’ll find on a stock chart and what it means:
- Previous close: The closing price for the last complete trading day.
- Open: Today’s opening price.
- Bid: The price people are willing to pay for the stock right now.
- Ask: The price people are asking for as a seller right now.
- Days’ range: The range between the lowest and highest prices of the day.
- 52-week range: The lowest and highest prices for the year.
- Volume: The number of shares traded for the day. The higher the volume, the more shares trading hands.
- Average volume: The average number of shares traded per day over a specified period.
This information is pretty standard for a chart, but the visual expression can differ depending on the type of chart. The key types of stock charts are line charts, bar charts, and candlestick charts.
Are You Ready to Start Investing in Stocks?
Just because it’s easy to start buying and selling stocks doesn’t mean that investing is easy. Don’t tread lightly here.
Here are some things to consider before you begin putting down your hard-earned cash…
Define Your Goals
What are your goals for investing? The more specific, the better. I’m a big fan of goal-setting theory, which theorizes that the more specific and complicated your goal is, the harder you’ll work to attain it. So if your goal is something vague like “get rich,” try harder.
Understand Your Risk Tolerance
Risk is inherent to the stock market — there’s no way around it. But that doesn’t mean you should love risk. In fact, you shouldn’t. You should hate it and be motivated to do whatever you can to avoid it.
It’s smart to start your investing journey with a solid idea of what your personal risk tolerance is. For instance, if the fast pace and volatility of penny stocks make your stomach churn, position trading might be a better pick for you … it all depends on you.
One of the best ways to really get an idea of your risk tolerance is to educate yourself on different methods of investing. See what’s most appealing to you but still within your comfort zone.
If you’re so inclined, there are plenty of quizzes online to help figure out your risk tolerance, too.
I like to say that as a trader, you have two accounts. One is your brokerage account … the other is your knowledge account. This is relevant to any type of investing, though.
Before you can make the former bountiful, you’ve got to invest in the latter. That means beefing up your stock market knowledge.
Get your priorities straight! By learning all you can, you’ll equip yourself with the necessary tools to make intelligent decisions with your money.
How to Find Great Stocks to Invest In
Where should you look for stocks? Here are some common approaches to finding them.
Buy Stocks Online
This is the DIY approach. You make your own decisions about stocks based on your independent research and execute trades via your broker online. This is what I do as a penny stock trader. I’m solely responsible for my trading decisions. It requires a lot of diligence and research, so it’s not for everyone.
An investment club is a group of individuals who pool their resources so that they can make a joint investment. Typically, club members investigate different investments, then the group makes final decisions together.
This is a broker that provides services beyond just executing trades. They might provide services like investment advice, research, retirement planning, and tax advisement to name a few.
An individual or firm that manages portfolios for individual or institutional investors. Usually, a money manager represents expertise in a variety of areas. The idea is that they’re better educated than you and can make intelligent decisions for you.
This is a type of mutual fund that either tracks or emulates an index such as the S&P 500.
A mutual fund is composed of a variety of different securities rolled into one big investment vehicle. They’re funded by many different investors and managed by a professional who’s responsible for allocating the funds.
A hedge fund pools capital from investors and institutional investors and allocates the funds to a variety of assets. They’re not for most newbies: they typically require an initial investment of $500,000 or more.
The Bottom Line
Whatever investing style you choose, before you invest a single dollar, you need to know not only what you are getting into, but why.
What are your goals? How much are you willing to risk on trades? What is a reasonable time frame to achieving those goals. If you can’t answer those questions then you are NOT ready to start investing.
Remember, trading isn’t a get rich quick scheme. If you look at it that way, you’re bound to end up with busted accounts and misery.
Tomorrow I’ll go over tips to keep you on track when your money is on the line.
Editor, Penny Stock Millionaires