How to Buy Stocks or Shares (They’re the Same Thing)

So, you want to know how to buy stocks. The most important thing to remember when starting your investment career (think of trading and investing as a business, after all, you are in it to make money) is to be realistic. Learning how to buy stocks takes time, study and practice. Remember: it’s your hard earned money you are going to be trading stocks with so be careful and be responsible.

Start with a trading plan. This will outline your goals, trading routine, money management and continued learning. Trading without a plan is more like gambling and will see you stuck in the Beginner’s Cycle for a very long time. The more detailed your plan the better.

A great way to start is to create a simple mechanical trading system using computer software. A trading system is simply a set of pre-defined rules which dictates when and where to enter the market and when and where to exit. It may also include money management rules. At The Chartist we use computer software to create some of our trading systems. We recommend our clients use RealTest as it is inexpensive and yet a high quality, relatively simple to use, product. The advantage of creating a trading system using computer software is that you can test the rules on past data. This testing, known as backtesting, will give the trader some indication of what has occurred historically and can give a glimpse of what may be possible in the future.

We have written about designing a mechanical trading system here. For a comprehensive course covering all aspects of building trading systems have a look at our Trading System Mentor Course.

Once you have designed your trading system, paper trade the system for a minimum of 6 months. That might sound like a long time for someone who is just learning how to buy stocks and is dying to get stuck into the stock market but…the markets will always be there. When paper trading record your trades in a diary exactly as though you had physically placed the trade. Record your entry price, trailing stop and exit price. Also record information such as how you felt at the time – were you nervous, feeling cocky or bold. This will help you to understand your reactions to each trade.

Once you have a reliable trading system you will need to set up and account with an online broker. Who to use? That is a personal choice. If you are trading only the Australian market then an Australian online broker is fine. At The Chartist we use SelfWealth and Interactive Brokers for short term systems with advanced order placement. Each of these brokers provides free information for people learning how to buy stocks. We highly recommend reading and viewing as much free material as you can and avoid expensive spruikers and get-rich-quick promises. The only people who will be getting rich is them – not you!