For illustration purposes, lets assume I have just invited you over for dinner. Assuming you accepted the invitation, one of the first questions your would ask is “How do I get there? “ The same applies to beginner investors. Every investor was at one time a beginner investor. The investors who reach the finish line with a nest egg had a plan to get there.

Lets get back to dinner. I live in Florida. You live in California. That would not provide enough information for your arrival. You have a starting place and a destination, but what about the plan to get to dinner? You would need to know specifics. The same applies to investing. You would prepare for the journey, chart a course and arrive safely in Florida as you would with your investment goals.
The same principle applies to beginner stock market investing. Lets assume you have $10,000.00 to invest right now. So how do you prepare?

Understand How The Stock Market Works

Individual investors should start right here. What makes a stock price move? Hint: it is not individual investors. Institutional investors, such as mutual funds, and banks, move stock prices up and down. Simple supply and demand I the order of the day. Institutions make a living buying and selling stocks. Following along with how institutions trade is a good place to start. Understand your 1000 shares of XYZ are not going to move the stock price.

Defining Yourself as An Investor

My personal stop loss point is 6%. Why is that? Because I do not like the way it feels losing 10% or even 7%. This is a hard and fast rule for me. I remember following a stock once down to a 20% loss thinking all the while it would come back. It did not. The point is I know myself, and I know my rules. They are non-negotiable factors for me with investing in the stock market.

Where Are You Now As an Investor?

Every journey begins with a starting point. Every journey has a destination point. Everything you do in between will either define your success or document your failure. Set your goals; practice your strategy with paper trading stocks. Set aside capital for short term investing. Plan to include long-term investments. Open a money market account for safely keeping your cash. Determine your plan and then work your plan. Dinner is at 6

Becky seemingly everyone wants to makes a living day trading. Can you tell us in reality, how hard is that to accomplish?

That is a hard question to answer. I would say that most people could not make a living day trading. You need to have a good understanding of the markets, their trends and how the markets and individual stocks react to news. You need to know what things to take into consideration (PE, float, volume, chart) before trading a stock.  It takes confidence in your research. You need to have the time to watch the financial news and your stock trades.

You need to know what your risk tolerance is and how you would handle the volatile moves in stock prices. It’s something that comes by trial and error it is something that is learned and it is not learned without risk of monetary loss. But if it is a passion and you have the time to read and learn and the money to risk, yes that type person can make a living day trading.

I did not go to college, have never studied finance or economics, I am a homemaker and a mother that makes money by day trading stocks online. I have been involved in the markets, trading stocks for the past 10 years not necessarily day trading. I had never shorted a stock until this past year. When a market is in a downtrend it is very hard to make money being long.

My thanks go out to theStreet.com and Jim Cramer for sponsoring the Beat the Street contest last year. I did well in the first game (42nd place) and then won their second game, it gave me the confidence to open a margin account and start day trading and shorting stocks.

How much money does a person need to start day trading?

You can open an account with two thousand dollars at Ameritrade (which I use) or
E-Trade. There are other online brokerages Scot trade only requires five hundred dollars to open an account. Keep in mind this type of account you would only be able to buy and sell. To be able to short stocks you would need to apply for a margin account, which requires quite a bit more money. At Ameritrade minimum to open a margin account is twenty-five thousand dollars. You would need to check with each brokerage house to get their requirements for a margin account.

How much time do you spend researching stocks to trade?

I spend approximately two to three hours after the market closes checking earnings reports. In this market I’m looking for missed EPS, Revenue, downside guidance for the next quarter or coming year. I take notes on everything so the next morning I remember what sector the company is in, what they do, how bad the miss was. Next I go research the stock for the PE, float, volume and look at the chart trend. I make notes on that, I read the news releases. If I have more than a few possibilities I narrow my choices to just two or three. In the morning I watch the volume and the amount of the gap down in pre-market and I watch the futures so I have an idea of what the market is going to do when it opens. I also have CNBC on all day.

Do you have a pre-determined exit strategy when you buy a stock?

If I buy or short a stock for a day trade and it moves enough that I make 150.00 to 300.00 I’m out. If it goes against me if it gets to a 20% loss I am out. If it goes against me and does not hit 20% I will watch the daily chart and volume, it will make a high or peak on the chart and go back down if it comes back up and breaks that peak I’m out.

Does your portfolio have long term investments?

Yes, I have long term investments. I think you should have a separate account for those investments. That way it’s easier to track how well you are doing with the day trading. If you have long term investments you have been losing money the past 10 months or so.

What is the number one number mistake a new day trader makes?

I can’t speak for other day traders, but a big mistake I made was to under estimate my risk tolerance and being greedy, holding out for just a little more. For example I shorted 5000 shares of XYZ at 5.88 per share the price goes to 5.80 (that’s a 380.00 profit after commissions), do I cover no I’m hoping for more, the price starts going up it passes the 5.88 I shorted at and I’m losing 50.00 every penny it moves I cover at 5.92 (a loss of 220.00 including commissions) and then it starts moving back down and had I held it I would have had a large profit. I have learned not to make such large trades and when I have a profit, take it.

Now for the last question I would like you to ask yourself a question that people would like to see answered. In other words if you were a new prospective day trader what would you want to know?  Stock picks not included.

Be sure to use limit orders not market orders!! When a stock is moving fast, you used a limit order, and it does not get filled, it is not usually a good idea to chase the stock. There is always tomorrow and a lot more stocks.

I would want someone to tell me to practice first, paper trade stocks. Find a stock that you want to trade, do all of the research. See if it moves like you thought it would. Write down the opening price, your price would be somewhere close to that. Decide to sell or cover, write the price down. See how well you do. I would say to practice for at least two to three months before risking your money. It is not an easy thing to do, and paper trading is way less stressful than when your real money is at risk!

To all of you out there that would like to try your hand at day trading, you need to keep some things in mind. The market has been in a downtrend since December. We have been in a Bear market for the past couple of months. A bear market is when a market index (Dow, S&P 500, Nasdaq) is down over 20%.Right now the indexes are all down between 30% to 50%. In a down market, most stocks are going to go down. There will be individual stocks or sectors that pop on news, but then they will follow the market back down, for example GOOG, ISRG, POT (some of Wall Streets darlings) these companies beat their earnings expectations in the last couple of weeks, but are selling off because the market is trending down. Because of the reasons I stated above I have not been going long with my day trades, I look for stocks to short that have released bad news after the close.

Some things that I look at when I locate a possible short is the float. The float is the number of shares available for the retail investor to trade. The smaller the float the more unpredictable, and wild the swings. I usually do not short a stock that has less than a 15 million share float. I check the volume, I like 75,000 minimums, more is better. I look at the PE (price to earning ratio) the higher the pe the more expensive the stock the better chance it will come down a lot, on bad news. Also check how much of the float is shorted the higher the percentage there is a good chance that a big drop in price they will start covering and the price will start going back up.

If you do not have the time to sit at your computer and watch a stock that your thinking about day trading do not do it! For example last night XYZ reported earnings after market close. Their EPS was .25 vs .26 analyst estimate, their revenue was 130 million vs 142.8 analyst estimate they also issued a downside full year forecast, 562.1 million vs 582.1 analyst estimate.(This is the kind of news that I personally look for). Their float is 64.49 million, average daily volume is 1,059.310 shares traded, and the short ratio is 18.10%. This morning you could have shorted shares of XYZ at 4.90 at the open and within 15 minutes covered your short and made hundreds of dollars, depending on how many shares you shorted.. The share price fell to 3.70 a share within 15 minutes before recovering some. It is best to take your profits while you have them. When the price is falling fast or going up fast and you have a profit take it, don’t wait hoping for a little more. Over reaction is something that happens on good news and bad news, and the price usually adjusts.

It could be that the market has made a bottom and is going to start to rally again, we have had our best week in a very long time, but it was in the worst month that the markets have had in years. Next week will be interesting, with the election on Tuesday you might want to wait and see who gets elected and how the markets react. The job numbers are also being released on Friday, which could affect market direction.

To anyone that is just starting to day trade I would suggest that you paper trading stocks and see how you do before risking your money. This is not an easy thing to do consistently. There are also games that you can enter on the Internet and you can practice your strategy and possibly win prizes and money in the process. Wallstreetsurvivor.com has Online Paper Trading weekly and monthly games going and CNBC is starting a contest November 10.

However you trade short or long, may all of your trades be profitable!

Just like we have said, day trading takes lots of research and experience. We hope to have Becky Smith back as a guest columnist. If you would like to read more from her leave a comment and we will forward them to her. Becky is developing her own website, The Stock Trading Housewife, thanks Becky

Buying Stocks On Hot Tips

Begin buying stocks because someone, a friend, a relative, or a stockbroker gave you a hot tip. Buying stocks is not like buying a lottery ticket, although many people buy stocks the same way. This is gambling and investing should never be confused with gambling. Investing properly require research in the company and research in the market. Failure to do both will guarantee failure, and subsequently lost money.

Buy Stocks Because of Name Recognition

Many people think they are buying stock in huge corporations and that will minimize the risk of losing money. Nothing could be further from the truth. Filings for bankruptcy protection occur everyday and that includes large corporations. When you think to yourself, this company is too big to go out of business, remind yourself of Enron.

Trust your investing decisions with a stranger

As in any business there are unscrupulous individual who prey on unsuspecting victims. Before you hand your resources over to anyone, make sure you have researched their background and their historical performance. Do not rely on their word as the final say. It is likely that you have worked very hard for your money. Saving money is difficult and requires sacrifice in today’s economy. Investing money in the stock market requires that same kind of diligence.

Buying Stocks That Have Recently Fallen in Price

Many beginner investors choose stocks because they are perceived to be cheap. Financial markets often affect stock price. However more often stocks that have fallen out of favor have done so because of the company is not on firm financial ground. Bottom fishing often results is falling further to the bottom. Stocks that have reached new lows more often than not go lower.

Buying Penny Stocks

This is a favored place for beginning investors to begin with investing in stocks. The reasons are simple. Penny stocks are priced right for new investors. Beginner investors are told, 20,000 shares of XYZ can be purchased for pennies per share. The immediately think the stock needs only to appreciate in price a few cents to double their money. The lure of easy money draws then in and frequently the loss of their investments teaches them a lesson. Concentrate on stocks that are proven winners. Leave the speculative stocks to the speculators and train yourself to become an investor.

The market reacts to every bit of economic news that’s hits the news wires. It always has it always will. Fortunes have been made off both positive and negative results. Are you a trader or an investor? Swing traders actually can flourish in markets like these. Their positions are usually tied to news, and enter and exit stocks on a short-term basis, from a few days to a few weeks. Swing traders watch for technical and fundamental analysis in determining their strategies, bent more towards technical signals.

However the investor uses a different tact. Their decisions are based on the fundamentals of the company. 90% of all stocks follow the market regardless of how good stock fundamentals are. This is where your own strategy comes into play. Determining who you are as an investor well in advance of trading the stock market is a key factor in determining your success as an investor.

We were recently asked a question. A woman stated she had lost 35% on paper with her investments recently. “What should I do?” We cannot answer that question for her, nor can anyone else. You will never be able to buy any stock at its absolute bottom, nor will you be able to determine the absolute top when selling. That’s simple fact is as much a part of investing in the stock market as any other rule you may apply.

Preservation of capital should be your number one priority with investing. Your pre-determined rules for trading stocks should be the rules you follow. The real question is do you have rules that you follow. Frankly most do not, and that is why most people lose money in a market correction.

There are many online brokerages that have a system on place to paper trade stocks. You start with a hypothetical sum of “money” and place buy and sell orders according to your strategy for a given security or stock, You place your buy orders as you normally would except you are not risking real money, this the term paper trading. Sell orders work similarly.

Paper trading allows you time to research companies and essentially trains you to pick stocks according to your criteria.. For example, buying XYZ at $12.00 per share. Determine why that is a good entry level. Why is this stock poised for a move? Are good earnings due? One of the hardest things you will do as a stock trader or investor is planning an exit strategy. Why is that? In a word greed . There is nothing mire exhilarating than purchasing a stock and watching it make a run of 20% over the course of a day. Contrarily there is nothing more frustrating than watching a stock head south and you cannot figure out why. This is why before you buy a stock it is advisable to have an exit strategy. Paper trading can help you to prepare yourself to make these decisions.

Now for a word of caution. Paper trading does not expose a very important component of trading with real money. Were it not for emotional decisions, everyone might be able to make successful stock trades. However we are humans and we tend to make emotional decisions. The stress level is just not present when paper trading stocks. Beware of building a fable confident attitude when you transfer your money to a real trading account.

Still the positives far outweigh the negative as paper trading stocks allows you to get familiar with the processes to become a successful stock trader.

The process of buying and selling stocks within the day to take advantage of sharp changes in their values within seconds or minutes is called day trading.  Profits are quickly locked in once the rising or the falling of the interplaying stocks is judged to be most beneficial to one’s investment.  The time restriction however, has the negative advantage of the transaction being most risky which can sometimes result to great financial losses within short periods of time.  The usual practice for the day traders is to buy stocks on borrowed money, and heavily leaning on leveraging in order to reap bigger profits.  The success of this endeavor is highly possible, creating wealth overnight, but as mentioned, the reality of having high risks for loss is also quite significant.

Many consider day trading as a sophisticated form of gambling, day trading however, is not unethical, nor illegal.  If an unprepared beginning investor negotiates this type of investment, the stress may be too unsettling especially if the situation calls for a quick decision.  The strategy, timing, and temperament of successful day traders win the day in this game.  The term ‘investment’, actually, is a misnomer in this field of trading.  Stocks are not really owned as traders look for those clues that will make them get out of these stocks before they change course for the worse.  The day traders take advantage of the momentum in the present movement of the stocks’ values.  The beginning investor commonly suffers severe losses in this type trading.

With the great risk of losing high amounts of money, funds intended for living expenses, education or retirement should never be used for this type of complicated day trading.

Our advice is to stay away from day trading if you are a beginner. Talk to any day trader and the tendency will be to tell you about the winners, not so much about the losers. Does that sound familiar? It should, many gamblers are wired the same way.

When considering how much you should invest, one of the first questions you should ask yourself is how much can I afford to invest.  In your deliberations, you should consider factors we have discussed previously, like your current financial situation.

Are you making payments on high interest credit cards or other debts?  Do you have enough money to sustain you for at least three months should you meet with some unforeseen misfortune like a sudden medical illness or finding yourself unemployed?  Do you have a home or other responsibilities that may require some unexpected out of pocket expenses?  These are all things to take into consideration when you set out to determine how much you should to invest

Many first time investors or beginner investors often want to begin by investing their entire savings.  Although for some this may be an option and if it’s true for you, great!  However, you should consider your entire financial situation and keep your investments strategy in line with your long range financial goals.  Think about what your savings was originally for.  This may prompt you to reconsider a full investment from long standing savings.

So, begin by determining how much of your savings should remain in your savings account, and how much can be used for investments. Unless you have income or funds from another source, such as an inheritance, this will quite likely be all that you have available to invest.

Next, determine how much you will be able to add to your future investments. If you are employed, you will continue to receive an income, and you can plan to use a portion of that income to build your investment portfolio over time. Most employers offer 401K plans and other savings plans to assist their employees with meeting their financial goals for retirement.  You can also speak with a qualified financial planner who can assist you in setting up a budget and help you determine how much of your future income you should invest to meet your financial goals.

With the educated and knowledgeable assistance of a financial planner, you can be sure that you are not investing more than you can afford – or less than you should in order to achieve your specific investment goals.

As with many types of investments, you can be assured that a certain initial investment will be required.  Research the investments you plan to make and be armed with all the information you can obtain prior to investing your money.  If you don’t have the required initial investment amount, you may need to look for other investment options.  Beginning investors should never borrow money to invest.

No matter what type of investor you are, or how long you have been investing your money, invariably you have probably made some mistakes along the way, perhaps even some costly mistakes. But, first and foremost, one of the biggest mistakes people tend to make is to not invest at all.  Do you want to make your money work for you?  You can!  Even if all you can spare is a few dollars a week, now is the time to commit to doing so.  You’d be amazed at how much money you could put aside to invest if you were to really get creative and analyze your monthly outlay with new frugal vision.  As with any decision, what it really boils down to is a choice.  You too, can make a choice to start investing today.

While choosing not to invest and delaying and postponing investment into your financial future are two of the biggest mistakes many people make, investing before you are in the financial position to do so is another rudimentary problem.  Before you begin investing you will want to ensure that your financial situation is in order first.  Get your credit cleaned up first.  Start by paying off high interest loans and credit debts you may be carrying, then set aside at least three months of living expenses in savings and don’t touch it.  Make that your emergency fund should you find yourself unemployed or unable to work for an extended period of time due to an emergency medical situation.  Once you have your financial house in order, you will be ready to begin letting your money work for you with a sound investment strategy.

That brings me to another common mistake people make when they invest.  Don’t invest to get rich quick.  Let’s face it; we have all heard the Cinderella stories of investors who were in the right place at the right time with the right amount of cash that turned an obscure, risky opportunity into one of the most astounding investments in their financial portfolio. How may Cinderella’s do you know?  That’s what I thought, me too, not a one!  But I do know many who equipped themselves with the knowledge they needed to invest based on their particular financial goals and situations that have capitalized on the opportunities that do exist in today’s financial markets.   If you are going to invest to get rich quick, you will likely loose most if not all of your investment.

Next, don’t put all your eggs in one basket.  Depending on your financial situation spread out your investment strategy to incorporate various types of investment for the best possible return.  As you gain more knowledge, experience, investment savvy and capitol within your portfolio, the more opportunities you have to diversify and capitalize on investments that are risky which may prove to be highly lucrative.  Again, it will depend a lot on your particular investment style.

For the beginning investor or the seasoned stiock picker , consistency, strategy, and long term planning will help you to achieve your financial goals. So make the commitment and judiciously embark upon your journey to financial security today!

We have talked about defining yourself as an investor . Depending on what kind of investor you are, there are, for the most part, three different types of investments or categories within which you can invest.  Essentially they include stocks, bonds, and cash.  Seems pretty simple, right?  Well, it certainly is not.  My advice is to proceed with caution, investing as in any other technique you develop to accomplish a specific purpose, especially one of achieving financial freedom or amassing significant wealth, can easily become very complex and risky. But, a lot can be accomplished by educating yourself, expanding your knowledge and understanding through solid research, and last but not least, by learning from your mistakes and continually honing and refining your strategy and system.

Fortunately, the amount of information and knowledge that you’ll need to equip yourself with is directly associated with the sort of investor you are.  As there are basically three types of investments as stated above, there are also primarily three types of investors.  They include the conservative, moderate, and aggressive.  And as with the varying combinations of investments your can make within the financial markets, there are also a broad spectrum of each type of investor within each of the three basics.

The conservative investor is often an investor who may be a bit older and have less time to play their hand in the financial markets before retirement.  They may also just be conservative by nature and not readily willing to part with their hard earned dollar and seek to achieve low but consistent returns on their investments.  They tend to place their money in interest bearing savings or money market accounts, Treasury bills, or Certificates of Deposit.  These investments are representative of the safest investments as they are low risk and grow over a long period of time.

Moderate investors tend to be a little younger than the conservative investor and likely have a bit more time to accomplish their specific financial goals.  They tend to be somewhat more diverse than the conservative investor and invest in cash, bonds and may dabble in the stock market.  Moderate investing is a cadre of low to moderate risk investment within the cash and bond market and may also include investments in real estate, providing the investment is of relatively low risk.

Aggressive investors tend to be young and commonly do most of their investing in the stock and financial markets within specialized, highly unpredictable sectors and may even invest significant portions of their portfolio in foreign markets. All can be highly volatile and extremely risky; however, these investments tend to be the ones that provide the greatest, sometimes even astounding, returns on investment.

Before you begin investing your hard earned money, it’s important to clearly analyze and understand your particular financial position and consider what your goals are.  You want to ensure that you possess a thorough understanding of your investment style and strategy and develop a plan that fits within that framework.  Lastly, knowledge is power.  The more you know and understand about the particular investments and their associated risks, the better off you will be when it comes to meeting your long range financial goals.