Published July 10, 2019
Investing in stocks can be really exciting and potentially very lucrative. That’s why the stock market attracts millions of investors every year. However, stock trading can also be very difficult, and the risk of losing money is always present. That’s why it’s essential to learn how to pick the right stock and figure out at what time to invest.
As you can imagine, picking the right stock is easier said than done. If it was easy, everyone would be doing it and no one would ever lose money. Unsurprisingly, mastering stock trading takes a long time and many failed attempts, and even when you become really good at it, you will continue to make bad trades.
Luckily, there are a few tricks that you can learn even as a beginner that will substantially increase your ability to pick the right stock, and you are about to learn some of them today.
Below is a four-step guide on how beginners can pick the right stock. The guide is very straightforward, and it will allow you to start trading almost immediately.
Step One – Find a Stockbroker
Before you can start investing in and trading with stocks, you need to find a broker that will help you do that. The number of reliable stockbrokers is constantly increasing and depending on if you’re planning to day trade stocks or place long-term investments, different brokers will be better for you than others.
In this very comprehensive stock broker guide platform and app guide, you can find information on what you need to think of when picking a broker as well as recommendations for some of the best brokers out there. Remember that this is a crucial step that could either make or break you investment effort, so take it seriously and make sure you find a broker that will suit you.
After you’ve found a broker you like and you’ve opened a trading account, you can move on to the next step.
Step Two – Pick a Market You Like
In order to make the investment process easier for you, you should limit your options. Experienced traders can usually handle several markets at once, but as a beginner, you will want to start off with one.
Most people tend to pick a stock market that they’re interested in or that they have a connection with. For example, tech or energy stocks, or one can pick a local market such as the Swedish stock market or Japanese stocks. The idea is to choose stocks that belong to companies that you’re already familiar with.
Whenever you’ve decided on which market you want to focus on, you can finally move on to the actual investing.
Step Three – Analyze the Market
The third step in finding the right stock is trying to figure out which stock is the best investment at the moment. This can be done using a plethora of different methods and strategies, and the more you trade, the more strategies you’ll acquire.
That being said, when first getting started, you should keep things simple and there are two basic concepts that can be applied when analyze stocks.
- Fundamental Analysis
In many ways, fundamental stock analysis is the most basic way of planning an investment. The concept involves studying company information such as revenue, sales, etc. as well as scouring financial news to find data that you can base your investments on.
Maybe one company release a quarterly report that was better than expected, that could indicate that now is a good time to invest. At the same time, news about a tech company’s poorly performing new product could be an indication that you shouldn’t invest or that you should try and short trade the stock. I think you get the point.
- Technical Analysis
Unlike fundamental analysis, the technical analysis focuses strictly on price movements. Instead of studying how the company is performing and reading the news, you will base your investments on how that stock is performing.
A technical analysis can be done very simply using a few easy techniques, or it can be a more complicated effort that requires a great understanding of charts, price movements, and investment strategies.
Luckily, there are several easy chart patterns that you can master and that will help you tremendously in the beginning.
Note that most professional stock investors use a combination of technical and fundamental analysis to pick their investments, and the more data you can collect, the better your assessment will be.
Step Four – Invest
The final step is maybe the easiest. As soon as you find a stock that you believe will be a good investment, you need to invest in it. The amount you invest in each stock will depend on your available funds, but a good rule of thumb is to never invest more than 1% of your funds in each stock.
Now, with your investment placed all you have to do is wait. Continue to analyze the instrument so that you can decide when it has reached its peak so that you can sell it before it drops back down.