Understanding Stock Trading Basics

How do I learn stock trading basics? This may be the question you are asking yourself when you begin to think about trading or investing.

As you start learning the basics, you may have noticed you are also learning a new language. The financial industry does a great job of trying to confuse you. Don’t worry! This site will help you de-code the language and understand stock trading.

Let’s get started. The first question to answer is “what is trading”? This is a very big open-ended question, but I will try to narrow it down. Here is a way to state the answer using financial jargon:

Trading is the act of entering a security and exiting it sometime in the future hoping to make money on the trade. 

I know this is a mouthful, but you are going to have to learn the language to be able to navigate stock trading basics.  So let me break it down further for you.  A security is what you are buying or selling, this could be a stock, option, commodity, or currency just to name the most common.  Entering is the act of buying or selling depending on the direction you believe the security will move before you exit.  Exiting is just the opposite of entering, which could also mean buying or selling.

All right, now lets put it in laymen terms.  If you want to profit from a security’s price going up you would enter (buy) and then exit (sell) in order to try to profit from the trade.  If you want to profit from a security’s price going down you would enter (sell) and then exit (buy) in order to profit from the trade.  Also know as short selling, we will go into this in more detail later.

Now lets look at some of the other stock trading basics you need to understand.  The time you hold the position will determine the type of trading.  For example, if you enter and exit a security within a day, then you are day trading.  If you hold the security for long than a day but shorter than a few months then you are swing trading.  Anything longer than three months is considered position trading.  It is important to understand the jargon so you know what to look for when evaluating a trading system or working on your own entry and exit rules.

 “In order to succeed, your desire for success should be greater than your fear of failure”
  – Bill Cosby

If you want to succeed in trading then you must continue to learn more about stock trading basics and how to apply them in a way that fits your trading personality.  Remember this is a journey.  One that could last the rest of your life.

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