What Are the Basics of the Stock Market?

  • July 23, 2018

Watch our video on the basics of the stock market.

What Are the Basics of the Stock Market?

  1. Here are the basics of the stock market:
  2. Securities are shares of a particular company you can buy and sell.
  3. Buy low and sell high.
  4. Low = support. High = resistance.
  5. Candlesticks are the foundation of trading.
  6. Follow the trend.
  7. Most indicators are lagging.
  8. Limit orders = specific price. Market orders = market pricing.
  9. Options allow you to trading in any type of market.
  10. Risk management is most important.

Learning the basics of the stock market is important to do before moving onto more advanced strategies. You have to be able to walk before you can run. Watch the video below to get a helpful overview on stock market basics.

The stock market is a tug of war between buyers and sellers. In fact, that fight forms Japanese candlesticks patterns. Patterns become very important to the success of trading.

1. Most Important Basics of the Stock Market

Candlesticks as well as support and resistance are two of the most important stock market basics. It can seem overwhelming when you begin the journey of trading the stock market.

However, the more time you put in to study, the better off you'll be.

When you're learning the basics of the stock market you have to start out learning candlesticks. Candlesticks are the name of the game. Candlesticks not only provide support and resistance, but also an emotional gauge of other traders.

Trading is incredibly emotional. Greed and fear play a major role in how stocks trade. Hence the reason we have candlesticks. In 17th century Japan, a rice trader realized that emotion affected supply and demand.

He came up with a system, candlesticks, that allowed traders to gauge the rice market sentiment with supply and demand. We use his system to this day.

2. Winning Trades

When you place your first winning trade, it's a great feeling. Then you start to get cocky and take more risks. When you have your first loosing trade it shakes your confidence.

One of the ways to get that under control is to learn how to open a brokerage account. Open one that has a paper trading account. Not only will you learn the difference between market order and limit order but you can place trades and learn to control your emotions.

You should place thousands of practice trades before using real money. By doing this you learn the different candlesticks and their meaning, patterns as well as support and resistance.

The Basics of the Stock Market

It's going to take time to learn the basics of the stock market. You might want to jump right in but in doing that, you're doing yourself a disservice.

3. Candlesticks

Candlesticks are the foundation of stock market basics. How else will you be able to read charts? Read our post on how to read stock charts for beginners.

Everyone learns bullish and bearish candlesticks from the get go. However, do you know what doji candlesticks are? How can you place a good trade if you don't know what all the candlesticks mean?

When traders are indecisive on a trade and you place the trade anyway and pick the wrong direction, you're losing money on the trade. If you're learning how to invest in the stock market with little money while not knowing candlesticks, you're brokerage account will be wiped out and you're done.

Hence the need to learn candlesticks. Candlesticks are so important because a single candlestick tells a story. When you group them together, they form patterns. Candlesticks also form key levels of support and resistance. Hence why candlesticks are the foundation of the basics of the stock market.

4. Support and Resistance: Basics of the Stock Market

While support and resistance seems so simple, it's one of the most important aspects of trading. Support is a level that price falls to multiple times and doesn't break (bookmark our penny stocks list and stock watch lists pages, which are updated daily).

Resistance is a level that price hits multiple times and can't break above so price falls back down. It's a simple part of the basics of the stock market but one new traders tend not to pay attention too at first.

When you see a stock running you usually get FOMO (fear of missing out). You want to get in on the move up so you jump in and then the stock falls. Why is that? Because you most likely bought at resistance.

Support and resistance levels are what all the successful traders pay attention too. You buy at support and sell at resistance; aka the basics of the stock market.

The Basics of the Stock Market

5. The Patterns

When candlesticks are grouped together, they form patterns. Patterns give you insight on whether a stock will reverse or continue. Patterns also provide support and resistance.

Traders pay attention to patterns. Do you know what bear pennants, evening star patterns and bullish homing pigeon patterns are? There are a lot of patterns to learn and they're all extremely important.

There's not crystal ball to tell you what a stock will do. However, patterns provide good insight into direction. Bullish and bearish patterns form within each other.

As a result, patterns can break down. It's important to remember that even the best traders fail 30-40% of the time. Even trading the patterns correctly. 

Take our free candlestick reversals course.

6. Take the Time to Learn the Basics of the Stock Market

The basics of the stock market include candlesticks, support and resistance as well as patterns. It's going to take time to learn this. However taking the time to learn is going to make you a great trader.

Open a practice account. Learn to control your emotions. Practice trading the patterns and support and resistance. Doing that is going to make you a great trader.

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