Watch our video on how to make money in the stock market for beginners.
How to Make Money in the Stock Market for Beginners
- Look up the best value and growth companies on StockRover
- Import the top companies into TrendSpider
- Only pick the best companies with the best candlestick patterns
- Use the weekly and monthly charts as a guide.
- The trend is your friend, only buy in the direction of the trend.
- Invest only what you are willing to lose, and never more.
- Aim for small wins, build confidence, manage risk.
- Stick to JUST STOCKS! You are a beginner and not ready for options..YET.
- Use a 100% free commission broker like Robinhood or Webull.
- Make sure you trade or invest in a stock simulator to practice first.
Spoiler alert, you can start trading with as little as $1000! I will show you it can be done. Psst, it's really not that hard.
Are you confused yet? Although some people believe investing and trading stocks are similar, they are in fact, quite different.
For instance, investing is taking your money, placing it somewhere, and hoping to grow it in the short term or the long term.
Whereas in day trading, you don't hold positions overnight. You hope to quickly enter stocks that are moving due to some catalyst. And, in some cases, quickly exit. People do it day in and day out, some even make a living doing it. Can you make a lot of money in stocks? Absolutely.
Another type of trading is swing trading. It's a completely different ball game. Generally, you hold stocks for a period of time, typically a few days to a few weeks.
“You don’t need deep pockets or access to a trust fund to start trading”
1. Big Broker?
Do you need a big brokerage account to get started? Not really. Contrary to popular belief, you don’t need deep pockets or access to a trust fund to start trading.
Even if you have only been able to save up a modest amount of funds for day trading, that’s okay! it just means you trade less shares of whatever you are trading.
Can you make a lot of money in the stock market? You can make a little or a lot, it all depends on your situation and what is a lot of money to you.
If I told you you can start trading with as little as $1,000 would you believe me? If I told you I started small, investing in .20 cent penny stocks and made a few thousand dollars, would you believe me?
Well it's true. I just did the math based on how much risk I could take (no more than 2% of my $1000 account) and planned my trade accordingly. If you haven't gotten started with a broker yet, check out a list of the best trading brokers.
2. My 3 Steps for Success
When I first started trading I felt like information was flowing at me from a fire hose. Quite frankly, I was drowning.
I've been reading a lot lately about the importance of simplifying in all aspects of life. And I thought ok, if I was new to trading what advice would have helped me the most when I started?
To cut a long story short, I think if you apply these three principles to your trading life, and you'll cut off the fire hose for good. They are as follows:
1. Follow proper risk management strategies.
2. Pick the right broker and platform.
3. Pick the right master mind group.
3. Let's Talk Risk
But Alison, I only have $1000. And I would say great! Given the situation you are in, let's talk more about how to make money in the stock market for beginners.
My cardinal rule, I never risk more than 2% of my account on every given trade. My job as a day trader is not buying and selling stocks, it’s managing risk. Write that down.
So, if I only have $1000, I can’t risk more than 2% - this case, which is $20. It may sound small, but small wins, slowly but surely can and will add up. Base hits people! Not every trade needs to be a home run!
“Your job as a day trader is managing risk, not buying and selling stocks”
4. Risk to Reward Ratios
All new traders should map out their risk to reward ratio. That's how to make money in the stock market for beginners. What are you risking versus how much you can make? If your risk is more than your reward, that's a trade you shouldn't be taking.
This is why you might want to consider using a stop limit order. If you're willing to risk 10 cents to make 20 cents (1:2) then stop limit orders would be placed with those two price points.
Good traders won't take trades with profit-to-loss ratios of less than 2 to 1. This means if you buy $1,000 worth of stock, and are risking $100 on it. You MUST sell it for at least $1,200 so you will make at least $200.
Of course, if the price comes down to $900, you must accept the loss and exit the trade at only $900 (a $100 loss).
Can You Make A lot of Money With Stocks?
- Making a lot of money with stocks is doable. But only if you know what you are doing. Technical analysis and fundamental analysis are the key to success. You can make money going long or short stocks. Options also allow you the ability to make money in any market, including range bound markets.
1. Steps on How to Make Money in the Stock Market for Beginners
I believe I already said this once before but I'm saying it again: Your job as a day trader is managing risk, not buying and selling stocks. Very important stock training tip.
How do you manage that? You have essentially three steps in managing risk.
Step1: I determine my maximum dollar risk for the trade I’m planning (never more than 2%).
Step 2: I estimate my maximum risk per share, the stop loss, in dollars, from my entry (10 cents).
Step 3: I divide “1” by “2” to find the absolute maximum number of shares I am allowed to trade each time.
2. Learn How to Make Money in the Stock Market for Beginners
To better illustrate this, let’s return to my $1000 account. Because of my 2% rule, the maximum dollar risk for the trade is $20.
I calculate my share size by dividing “Step 1” ($20) by Step 2 (10 cents) to find the maximum number of shares I can trade.
In this case, I can only buy 200 shares.
3. Picking The Right Broker: How to Make Money in the Stock Market for Beginners
I must admit, as a beginner without a lot of spare change to throw around, money matters. I hate, absolutely hate giving advice but I must in this case - don’t look for the cheapest broker.
That’s for later once you’ve nailed down your education and trading strategy. Then you can shop around for the cheapest fees.
For beginners, it’s a must that you can practice on quality, state of the art tools (a.k.a laptop) and equipment so you can mimic a real-life trading experience.
Think of it like this - if you want to compete in the Daytona 500, you better be practicing on a 700 horsepower car, not your 120 horsepower family sedan. Just saying.
Below are three awesome brokerages out there for beginners. There is no doubt lots exist but for now, here's just a taste.
4. TD Ameritrades' ThinkorSwim
TD Ameritrade often tops the pile of online brokers, making it tough for investors to decide between. They recently lowered the cost of their commissions dramatically. TD Ameritrade offers so many tools to help a trader succeed, and make it attractive to traders on a budget.
There is no minimum amount required to open an account and the customer service is impeccable. You won’t pay activity or annual fees with this broker. They offer free trades on stocks and etfs, and .65 cent option trades.
Why I like it for newbies is because of their robust trading platform, Thinkorswim (ToS). For instance, it's jam-packed with educational offerings, including on-boarding tools (called “swim lessons”) for the novice trader.
And, if you're just getting your feet wet, you can practice to your heart's desire in the fully functional demo account.
Here's a tip, the paper trading account has a 15-minute delay. Simply call up TOS, say you're a member of Bullish Bears and request access to live data.
Fidelity was rated the Best Online Broker in 2018 by Investor's Business Daily and StockBrokers.com. In fact, they were also named Best Online Broker in 2016 and 2017 by Barron's, Kiplinger's, and Investor's Business Daily.
Like ToS, it costs nothing to open a Fidelity account and they don’t require you to maintain a minimum account balance or charge you annual fees.
Furthermore, Fidelity has lowered its fees and they are some of the best among all brokers! They have free commissions just like TD!
$0.00 commission applies to online U.S. equity trades, exchange-traded funds (ETFs) and options (+ $ 0.65 per contract fee). Sell orders are subject to an activity assessment fee (from $0.01 to $0.03 per $1,000 of principal). Check out our in-depth Fidelity review for more information.
By opening an account you have access to over 265 commission-free ETF's. If you’re anything like me, you shop around. You'll see they are in line with the big players such as E*TRADE and TD Ameritrade.
With low commissions and an easy-to-use platform, they offer a solid experience for beginners as well as advanced investors.
They are one of the most trusted brokerages in the world, and is best known for its impressive desktop platform. TradeStation is geared toward active traders and charges a $99 monthly fee on accounts that don’t trade 5,000 shares or 50 options contracts each quarter.
As a matter of fact, TradeStation’s simulator is complete with research tools, stock chart indicators, and access to the community forums where you can exchange ideas with other traders.
All things considered, it’s an expensive platform, but you can test it out for free by signing up for a paper trading account. Take our free basic stock course.
7. Community: How to Make Money in the Stock Market for Beginners
Dr. Brett Steenbarger, the author of great books such as The Psychology of Trading, once wrote:
"There is no question in my mind that, if I were to start trading full-time, knowing what I know now, I would either join a proprietary trading firm or would form my own "virtual trading group" by connecting online (and in real time) with a handful of like-minded traders."
It's vital to be part of a mastermind group that will add value to your trading career. To whom you turn to ask trading questions? With that in mind, I encourage you to join a community of traders in our live trading rooms.
8. Next Steps to Take
Where there’s a will, there’s a way. The only limitation to making money in the stock market as a beginner is the one sets up in your own mind. If I can do this, you can too. You don't need anything over the top to start. Take our free online trading courses to begin your journey in stock training.