Stock Market Trading for Beginners

Beginning stock traders can become successful.

Every year, new investors begin the adventure of trading in the stock markets. There is no reason they can't enjoy profits right away. The key is to develop good habits from the start.

Fundamental Analysis

Stock prices are directly affected by a company's profitability. That profitability relies on consistent earnings per share (EPS) improvement, increased sales growth, and a high return on equity (ROE). According to "Investor's Business Daily" founder William J. O'Neil, investors should look for stocks that have a ROE of 17 percent or more and have an EPS growth of 30 percent or more above the previous year.

Charts to Buy at the Right Moment

Studying a stock's price action on a chart is called technical analysis. This is useful because certain patterns occur prior to big market trends. Typically, a stock price will consolidate into a sideways pattern for a period of weeks or even months. Whenever the stock price rises above this price range on above-average trading volume, it could signal a new trend. This is the time to buy the stock.

Cut Losses and Let Profits Run

A stock investor should never buy a stock without knowing when to cut losses and when to take profits. William J. O'Neil recommends to cut losses if the stock falls by 8 percent of the original purchase price. Whenever the stock rises, O'Neil suggests using a trailing stop to lock in paper profits until the profit objective is met.

References

• "24 Essential Lessons For Investment Success;" William J. O'Neil; 2000