Learn Stock Market Basics for Beginners

  • October 3, 2018

Watch our video on understanding stock market basics for beginners. The goal of the video (and this post) is to get you the basics. Sometimes that is exactly what you need to take a step forward and see if there is more you wish to learn...or if you've seen enough to know it's NOT for you. Read on and I'll explain. 

Stock Market Basics for Beginners

Stock Market Basics

New traders need to get off on the right foot, and the key is to start learning stock market basics for beginners. Learning the market can be fun, if you're taking your time and not adding any unnecessary pressure to yourself.  

One thing to keep in mind: The market is an emotional arena, and if you don't have a system in place for making decisions, you're gonna have a bad time.

The basics help keep you grounded as you learn, by building core principles. You'll also increase your confidence from learning the easy stuff first. The stock market is a war between buyers and sellers.  When you trade you're getting yourself in the middle of the battle, in a sense. Each side, bulls and bears, fight for control of a stocks price. That control over the momentum of the stock comes from the emotions of traders. Every candlestick tells a story (hence why we build a whole candlestick course!) and tells who is winning or losing the battle at any moment in time.

1. Greed, Fear, and the Market

Greed and fear control markets. So much so that CNN has a fear and greed indicator on their site! So, learn to control those emotions, and you're off to a good start. Trading isn't easy. Even if all the Guru's in your Instagram feed make you think otherwise. In fact, it takes focus, hard work and dedication. If you're looking for an easy way to get rich quick, you're not going to last long in this arena.

Stock Market Basics

Please note this is from 5/4/2020 and you need to check the current fear and greed indicator here.

2. Investing &  Speculation

What are the two uses for the stock market? Investing and speculation. Investing is buying and holding long term. Retirement funds are meant for investing 401k's, mutual funds, ETFs, are all used for investing for the long haul.

Speculation is trading. You're speculating on the short term price of a stock, up or down, and trading based on what you think is happening or what will happen.. You're hoping that when you buy a stock, price goes up and you can sell for a profit. The bearish side (short selling) is the exact opposite. Hoping the price goes down so you can take advantage of the fall.

You should decide which type of person you are in the market. Do you want to invest or trade? When you figure that out, you can really set your focus and hone your craft. Here is my favorite book for new and experienced investors: The Intelligent Investor - its a great book on value investing and thinking long term. For trading, I like Trading in the Zone - it's a great book on the psychology of trading and the successful mindset needed to master the craft. 

3. What is a Stock?

What is a stock? It's a share of a company. You can buy and/or sell them. There are many different types of stocks you can trade or invest in. The great thing about that is there will always be a stock that makes you money. The more you know about the market, the more opportunity exists.

A part of stock market basics for beginners just starting out is chart reading. When you first begin looking at the charts, they can seem like Greek to you. Don't worry. You'll begin to understand them and get the hang of reading them. We're here to help you figure it all out too! 

Now, we do love charts. Charts are your friend. They tell you who's in control as well as giving direction with candlesticks and patterns. Read our post on how to read stock charts for beginners.

stock market basics

A live look at what trading can feel like. Are you ready? Read our post on stock training.

4. Stock Market Basics = Practice

One of the best stock market basics for newbies would be to practice. A lot. The great thing about some of the different brokers out there, is the choice to paper trade. Make sure you find a good stock trading simulator. Our trading rooms are a great place to watch us live each morning and practice paper trading.

Paper trading allows you to learn without risking real money. As a result, you can learn how to to place orders as well as chart patterns. Watching a stock chart in real time will show you how the market and stocks react to news. 

Paper trading allows you to work out the kinks. Through trial and error you can find the strategy that works for you. Trading in a simulated account lets you learn to control your emotions as well. We can't stress the need for simulated trading in the beginning. Save your hard earned money and make mistakes in the simulator before moving on to trading or investing with real money.

Placing a winning trade is a great feeling. You get excited and want to do it again so you jump right back in. Greed is taking over. Then the trade starts to go against you..

That is an awful feeling. As a result, fear takes over and you sell. This is were seasoned traders capitalize on the emotions of new traders. Paper trading helps you to learn how to get your emotions under control. Take our free online trading courses for beginners.

Typically, you'll find us up early each morning reviewing the charts in our trade rooms. Then we are building a plan of action. When A happens we will do B, and etc. Often we are done trading by 10am! Then you have the rest of your day to yourself!

Stock Market Basics

You need to place hundreds of paper trades before using real money. When you do use real money, start small. Then build on that.

5. Support and Resistance: Stock Market Basics

Support and resistance are a huge part of stock market basics for beginners.They are levels that price obeys. Price will touch certain levels multiple times without breaking above or below. Eventually, every channel,  trend line or support will break, for a long or short amount of time.

That is why its so important to manage risk on every trade. Every trade needs defined risk before you enter. How much are you willing to lose? Where will you take profits? How much can you make? These are questions you must answer prior. No exceptions!

The more a stock chart plays out, the more the chart shows key levels traders pay close attention to. You never want to buy at resistance. A lot of new traders make that mistake because they don't know how to find support and resistance. If you don't know support and resistance yet, don't trade!

When you are "long" a stock, and price falls back to support and now you're in the red.  How do you react? Well if you have a plan, you don't react anyway emotionally. You just execute the plan. Either way, a loss is a loss, and that's not a great feeling as a new trader. Can you see the emphasis we are stressing here?! Learn support and resistance. That is one of the foundations of trading so learn it. Check out our how to make money in the stock market for some next steps.

6. Candlesticks

Candlesticks and patterns are another part of stock market basics for beginners. You need to learn patterns and how to trade them. Candlesticks by themselves tell a story. When you group them together, they form patterns.

These patterns form from the tug of war between buyers and sellers. Patterns can tell you a lot about a stock; direction as well as sentiment.

There are large patterns, medium patterns and small patterns. For example, symmetrical triangle patterns, falling wedge patterns, and three black crows patterns are just some of the different patterns out there. Some of my favorites are bull flags, wedges, and megaphone patterns. If I don't have multiple patterns that sync well together, than I don't put on the trade. That means I might like a bull flag, inside an ascending triangle, inside a giant inverse head and shoulders, for example, 

These patterns aren't a crystal ball into making winning trades. They do, however, help to give direction and help you manage risk for your entries and exits. Live streaming is a service that we offer to our community members within our trading service. You'll get to watch us live and learn all about the stock market in real time!

Summary: Stock Market Basics for Beginners

Stock market basics for dummies is a good place to start if you're interested in trading. It may seem overwhelming. If you're looking for easy, you won't find it here. It takes patience, study and determination. You have to have the will, drive and self-control.

As long as you're willing to put in the time and effort, you'll become successful. It's always overwhelming when you're new. However, the more you do it, the easier it becomes. We are here to help! Let us know what we can do to help you learn the stock market. Be sure to click one of the social media icons below and share this blog post!

Free Trading Courses