Stock Market For Beginners - The Basics pt. 2Stock Market Basics For Beginners covered rules 1 - 4. Stock Market For Beginners continues with rules 5 - 8. This is not a complete education but serves toanswer the basic question, "how does stock market work?"
Stock Market Basics - Rule FiveUse limit orders until you gain enough experience to know when and how to safely use market orders.A market order tells the market maker to fill this order immediately. Price is not the primary consideration, time is. Consequently, you could be shocked at the price you end up paying for shares ordered at market. Market orders also allow the market maker to take full advantage of the bid ask spread. They put money in their pockets by taking it out of yours so be careful. When you place a limit order this tells the mm to give you the shares at the order price or better. If the price falls a little by the time your order uploads, you may receive the shares at a slightly lower price than you asked for. This is called price improvement. If the price rises before your order uploads, the mm will simply hold the order until the price falls back to your specified price. If that fails to happen, you will not get a fill. With a market order you always get a fill, but the price can be a surprise. With a limit order you may not get a fill but the price you will pay if you do is certain.
Stock Market Basics - Rule SixTrade during normal market hours. This is generally 9:30 a.m. - 4:00 p.m. Monday - Friday.This will allow you to place your stock trades online. Your brokerage will charge you a fee on both the buy and sell side of each trade. These fees mount up quickly and subtract from your gains so you always want to make the cheapest stock trades you can. It's a good idea to do an online stock broker comparison before you open your account as the fees vary widely. If you work during normal market hours you may have to place after hours trades. After hours stock trading has its special uses and you may find a place for it in your arsenal of
trading strategies
but it's expensive. Only do it if you don't have an alternative.
Stock Market Basics - Rule SevenGo long for now.You have to learn how to trade from the long side (think bullish stocks) before you can learn to short. It's not quite as simple as just taking long trades in reverse. This brings us to...
Stock Market Basics - Rule EightThe final and most important rule of your entire stock market education.If I had to answer the question, "how does stock market work?" in three words these are the three I would use: with the trend!
Ed Burke won the CNBC Million Dollar Portfolio Challenge by doing this and now he's written an Ebook detailing his successful trend trading strategy. Always trade the trend. For longs this means you only trade bullish stocks. Stocks that are in an uptrend in an uptrending market. This concludes my explanation of how to trade the stock market for beginners on this page. The text links will take you to pages where those terms are explained in greater depth and to some good trading resources as well.
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