Stock Trading

🧾 What is Stock Trading?

Stock trading is the buying and selling of shares in companies with the goal of making a profit. When you own a stock, you own a small portion of that company. Stock traders try to capitalize on short-term market fluctuations by frequently buying and selling stocks.

🧩 Types of Stock Trading

1. Day Trading

Description: Buying and selling the same stock within a single trading day.

Goal: Profit from intraday price movements.

Needs: Fast execution, high capital, technical analysis skills, and discipline.

Tools: Real-time charts, level 2 data, direct access brokers.

2. Swing Trading

Description: Holding stocks for days to weeks to capture short-term trends.

Goal: Capitalize on “swings” in stock prices.

Tools: Technical and fundamental analysis.

3. Position Trading

Description: Holding stocks for weeks to months.

Goal: Profit from longer-term trends.

Approach: More relaxed and reliant on broader market analysis.

4. Scalping

Description: Making many trades per day to "scalp" small profits.

Goal: Accumulate many small gains with tight risk control.

Needs: High-speed trading setup and extremely quick decision-making.

🧠 Key Concepts to Understand

1. Stock Exchanges

NYSE (New York Stock Exchange)

NASDAQ

These are platforms where stocks are bought and sold.

2. Brokerages

A broker is a platform that facilitates buying and selling stocks.

Examples: Fidelity, Charles Schwab, Robinhood, TD Ameritrade, E*TRADE.

3. Order Types

Market Order: Buys/sells at the current market price.

Limit Order: Buys/sells only at a specified price or better.

Stop Loss: Automatically sells to limit losses if a stock drops below a price.

Trailing Stop: A dynamic stop that moves with the price.

4. Technical Analysis

Uses charts, patterns, and indicators to predict price movements.

Popular tools: Moving Averages, RSI (Relative Strength Index), MACD, Bollinger Bands.

5. Fundamental Analysis

Evaluates a company’s intrinsic value.

Looks at: Earnings reports, P/E ratios, revenue growth, debt, etc.

📈 Stock Trading Strategies

1. Trend Following

Ride the momentum in a stock’s current direction.

2. Breakout Trading

Enter a trade when the price breaks above resistance or below support.

3. Mean Reversion

Betting the price will revert to its average (mean) after extreme moves.

4. News-Based Trading

Capitalize on market-moving news and earnings releases.

🧰 Tools and Platforms

1. Charting Tools

TradingView, Thinkorswim, MetaStock for technical analysis.

2. Brokerage Platforms

Interactive Brokers, TD Ameritrade, Fidelity, Robinhood, Webull.

3. News Feeds

Benzinga Pro, Bloomberg Terminal, Yahoo Finance, MarketWatch.

4. Simulators

Paper trading platforms let you practice trading with fake money (e.g., Investopedia Simulator, Thinkorswim PaperMoney).

🪙 Costs and Risks

Costs

Commissions: Many brokers offer $0 commission, but not all.

Spreads: Difference between bid and ask price.

Taxes: Short-term capital gains tax (higher than long-term).

Risks

Market Risk: Stock prices are volatile and unpredictable.

Emotional Risk: Fear and greed can lead to poor decisions.

Overtrading: Excessive trading can lead to losses and fees.

✅ Getting Started with Stock Trading

Educate Yourself

Learn the basics of markets, trading strategies, and risk management.

Read books: "A Beginner’s Guide to the Stock Market" by Matthew Kratter, "How to Make Money in Stocks" by William O’Neil.

Choose a Broker

Start with a reliable broker that offers paper trading if you’re a beginner.

Set Goals

Decide if you want to trade daily, weekly, or invest long-term.

Build a Strategy

Develop a trading plan including entry/exit rules, risk limits, and watchlists.

Start Small

Begin with a small amount of money you can afford to lose.

Track and Learn

Keep a trading journal to track trades, emotions, and results.

📚 Resources to Learn Stock Trading

Books

Trading for a Living – Dr. Alexander Elder

The Intelligent Investor – Benjamin Graham

Reminiscences of a Stock Operator – Edwin Lefèvre

YouTube Channels

Rayner Teo

The Trading Channel

Warrior Trading

Websites

Investopedia

Finviz (for screening stocks)

Yahoo Finance

📊 Example: A Simple Swing Trade

You find a stock (XYZ) trading at $50, and it recently bounced off a support line.

You enter a limit order to buy at $50.

You set a stop loss at $48 (to limit losses).

You set a target price at $55 (for a 10% gain).

If it hits $55, you sell and book the profit