My Students’ Blog

A Guide to the U.S. Stock Market

By Gerardo Salgado

The United States stock market, composed of two major stock exchanges, which are the New York Stock Exchange and the National Association of Securities Dealers, is the biggest financial capital in the world, and many people have made fortunes while stock trading. Knowing how to properly trade in the stock market might get you to riches as well.

You may ask, “What is a stock?” In general terms, a stock is a part of a company’s capital, and the stock market allows for the average investor to put their money into a company through “shares.” The share is a set amount of money that you can invest in a company. For instance, you are putting your money into a company, and you basically own a small part of that company.

As you own shares, the value of the share can change, and many factors determine the value of a share, but overall, as the company grows and generates more money, the value of that company’s share increases. It is very important your company’s share value increases because as the value of a share goes up, you are able to sell your amount of shares for a higher price than you originally bought it as. This action of buying and selling stock is called “trading” in the stock market community. As you generate more money through trading your stocks, your “portfolio” grows, and your portfolio is a summary of your past and present stock market trading.

Although there has never been any set procedure of trading in the stock market, there have been a variety of categorized methods made by stock traders through the years, and they are very well known in the stock trading community today.

First, there are two methods that come from the way a share changes value, and shares always are increasing or decreasing in value. Many recommend for beginning traders to start with trading “bullish” stocks, to make the process of trading more simple, and easier to understand. In summation, the goal of bullish trading is to sell stocks at a higher value than you originally bought them at.

Now to understand the different methods of trading regarding time. How often you trade plays an important factor in how you trade. Most people categorize these time frames into three separate groups, which are “day trading,” “swing trading,” and “long-term trading.”

Not only the rich can be stock traders.

To start, day trading is trading in the shortest time frame, which would be a day. Day trading is for people who like to see immediate results through quick decision making. Though, day trading is not recommended for beginners because of the erratic motion of stocks in short timeframes, so you may want to consider the different forms of trading.

The second form of trading is swing trading. Swing trading is trading on a time frame of one day to two weeks. This method is recommended for beginners because it gives a sense of faster paced trading, but also gives a glimpse of how long-term trading feels like.

The last form of trading is long-term trading. This type of trading is usually from six months to five years. During this range of time, you should be evaluating your value of your stock, and seeing if you should sell your shares, or reinvest your shares into the same company. This is also a good method for beginners to trade in because of the possibility to make a good amount of money, and many investors recommend everyone to have at least one long-term investment. This investment should be in a very well known company like Amazon, Coca-Cola, or Netflix. 

Another categorization of stock trading is by value, and the two groups of values are penny stocks and blue stocks. Penny stocks are stocks that cost less than five dollars per share. Penny stocks are known to fluctuate very quickly and sometimes unpredictably, so penny stocks are not recommended for beginners. Inversely, blue stocks are stocks that cost about 50 to 500 dollars per share. These stocks are less risky than penny stocks because the companies that own blue stocks are the ones that are more known and well established.

Since the basics of stock trading are covered, let’s go over some tips for the stock market, and info that is very useful in stock trading. A very important task to do in stock trading is educating yourself. First, you should educate yourself in the basics of the stock market. You should watch stock market videos, read about the stock market, and watch the news for information that could help you make or save some money while trading. Even before starting to trade with actual money, you should participate in stock market simulators, which would allow you to practice trading with virtual cash and less risk. Most people lose money in the stock market because of the lack of education, so you need to make sure you have enough knowledge to make informed decisions while trading.

As previously mentioned, something you should do is regularly watch the news. Knowing the current events around the world will help guide you in making decisions of which stocks to invest in. Though, stock crashes do not only happen in times of distress or emergency.m There are multiple possible reasons why stocks can crash, so you must keep an ear out and watch the news for information that could affect the stock market.

So, do you feel like you can start stock trading today? If not, don’t worry. The stock market is always changing, and every stock trader is learning as the economy changes, so you’re not alone. Just remember the most important thing about stock trading is being informed, confident, and knowing what and how you’re going to invest. If you do that correctly, you can expect to be a great stock trader.