Let us begin with a very simple question – What comes to your mind when you say the word “Stock Market”?
List of most common terms include-
- Profit and Loss
- Bulls and many more
However, this mere list of words does not constitute the stock market. The stock market is much more than that. Here is a Beginners’ Checklist for Stock Market that will help you understand the functioning of the market.
What is the Stock Market?
It is a mechanism where the shares of publicly traded companies are bought, sold and issued. It is one of the most important parts of the free market economy.
So, how does this market work?
The prices of the shares in the market depend upon several factors. If we understand it in simpler words, when the number of buyers is more than that of sellers then prices of shares will go up.
Likewise, if the number of sellers exceeds the number of buyers, the prices of the shares will go down.
Given the fact that we are now clear with the basics, let us now discuss what all needs to be kept in mind by beginners who are planning to invest in the stock market.
1. Set Long-term Goals Patiently
There are three things which decide your wealth in the long-term. These include investment capital, net annual earnings, and the number of investment years.
For those of you who are beginning to take a plunge in the market, you should be clear when it comes to your financial needs.
You should set the purpose and period of funding clearly right from the beginning.
2. Decide on your Risk Tolerance
Risk Tolerance basically means how you feel about risks and the degree of anxiety you go through when risk is present.
You should understand your risk tolerance and then make an investment. This way, you can avoid the investments which will certainly make you anxious.
It is important to note that you should never own any kind of assets which can keep you from sleeping peacefully at night.
3. Read Good Books
It is rightly said that books are one’s best friend and thus according to me, the key to every knowledge in today’s date is reading.
Here are a few good books which you can start with to understand Technical Analysis.
- Reminiscences of a Stock Operator (Edwin Lefevre)
- Trading for a Living (Alexander Elder)
- Technical Analysis of the Financial Markets (John J Murphy)
- Japanese Candlestick Charting Techniques (Steve Nison)
- Encyclopedia of Chart Patterns (Thomas Bulkowski)
4. Follow Good Traders
When you think of entering this exciting world of the stock market, you should know about the best traders in the world. Read about them, their strategies, books, etc. It will surely benefit you in a trading career in the long run.
For reference, here are a few well-known names in the industry –
- Paul Tudor Jones
- Jack Swagger
- Alexander Elder
- Martin J Pring
- John J Murphy
On a final note, here are a few basics which you cannot ignore –
5. Financial Metrics and Definitions
P/E ratio, EPS – Earning Per Share, ROE – Return on Equity, and CAGR – Compound Annual Growth Rate.
6. Popular Methods of Stock Selection and Trading
You should understand fundamental and Technical Analysis to apply in stock market strategy.
7. Stock Market Order Types
Stock types such as market orders, limit orders, stock market order, stop-limit order, and trailing stop-loss orders.
8. Different Types of Investment Accounts
Cash accounts and Margin accounts are two accounts that form major trades. You should know the rules for each.
Once you are aware of all these things, you are good to go. However, you should remember that there’s a long way to go and as you progress you will come across new terminologies.
There is no field out there which won’t require you to know more about it.
Keep yourself updated and you’ll be good. Hopefully, this Beginners’ Checklist for Stock Market will give you a better understanding of the stock market functioning.