Learn the Basics of Trading
I’ve always wanted to make money no matter where I was. I didn’t want to be tied to a location or a set schedule, I could make my own rules. Recently, I’ve had to face this reality due to a brain injury from a motorcycle crash. Not being able to work made me worry about how I would provide for myself. I needed time to recover so I needed a system that would work for me to make money no matter what I was doing, so I learned how to invest in stocks. The coolest thing about investing is there’s no discrimination: your gender, race, age (if you’re over 18) doesn’t matter. There’s no “glass ceiling” to break through, you’re completely in control of your financial future. I started trading when I was 19 after watching the movie Limitless. It was cool knowing that I could make money anywhere as long as I had a cell phone signal. Originally I was buying shares and waiting for the price to go up so I could sell them for a profit but the money wasn’t coming fast enough, I had no strategy, and no real comprehension of how stocks moved. Stocks can do 3 things: uptrend, downtrend, and channel. An uptrending stock is when the overall price movement is upward. You can tell a stock is uptrending when each successive peak is higher than the last one. A downtrending stock is the exact opposite of uptrend. Here we can see $TSLA (Tesla) is down trending during the time the article was written. Stocks can also channel. The stocks price consistently stays between two ranges, a low and high price & never goes too much lower or higher than those prices. Understanding how stocks move lets you better predict when to buy & sell so you’ll almost always make a profit. Everyone gives the same advice about investing: buy low & sell high. What does that even mean? The one strategy you need to master trading is buying support & sell resistance.
No matter whether a stock is trending upward, downwards, or sideways there are two lines they generally follow: support and resistance. Support is generally the lowest spot the stock normally hits as it zig zags as the price moves. Resistance is the highest peak the stock generally doesn’t break through as the price moves. Even as the stock moves up or down so does the support and resistance line. The line of support and resistance trends travels upward or downward depending on the direction of the stock. You’re probably thinking if a stocks overall direction is upward why not just buy whenever you want and sell when it gets higher. If you buy a share at or near its peak there’s no guarantee that it’s going to continue to climb. That’s why knowing the resistance trend of a stock is important. If in the past stock has trouble breaking through the resistance price buying when the price is high could potentially make you lose money. Let’s say you’ve finally found the perfect stock that’s trading near resistance (the time to buy) but you don’t know when to make your move. The price of the stock is falling, but what you’re waiting for it to bounce, or turn upward again. Investors call this buying the bounce. Buy when the price is especially low and sell whenever it hits peak resistance. This process can also be automated to control how much money you earn on each trade. For example, the number of shares you own multiplies how much you can make. Let’s say you bought 20 shares of Nike ($NKE) for $50 a share and the price goes up by $.50 in one day, you just made $20. You don’t sell yet because you’ve done your homework and you know resistance is around the $55 mark, you could potentially make $100 when it hits that price. Online trading has made this easier than ever, you can sell stock when (and if) it hits a certain price guaranteeing that you will make money without having the watch the market all day. All you have to do is put in the research up front to find a how a stocks support and resistance has been trending and make educated predictions because of it. There is always risk in investing. Understanding how the market works and how stocks trend minimizes that risk.