How to Trade the Share Market

Below you find 2 very basic video clips to explain some very simple questions a beginner may have. I also will explain the differents between fundamental analysis and technical analysis as part of the basics of the share market.

1) What is a stock or share?

2) Definition of a Stock Market

3) What is a Stock Exchange?

4) What types of stocks are traded on a Stock Exchange?

5) Why do Stock prices go up and down?

6) How to pick winning Stocks? I like to know that one too.

7) What are Stock tables ? The next video will explain that further.

8)What makes Stock Market investing risky.

The 2nd video clip: How to read a stock table.

This explains to you on how to read a stock market table as you find them in the news paper or a magazine. The columns vary a little depending on which paper or magazine you get as some have more detail as shown in the video.
The video gives you an idea on what High/Low, Symbols of stock, Dividends, Yields, P/E, Sales, Close and Change means.

The only bit of extra information I like to provide is that Dividends are not always getting paid quarterly. In many instances companies pay only once or twice a year, while a lot of companies don't pay any. The companies which don't pay any dividends hopeing on giving their shareholders value by an increasing share price.

There are many reasons why people get involved in buy shares. The biggest reason is to make money and lots of it and quickly.

Building wealth in form of buying shares has been proven to be better then leaving money in the bank. Despite the fact that the share market fluctuates a fair bit on a day to day basis, overall the share market has returned in excess of 10% per year on average over the past 50 to 100 years.
These returns have come in capital growth and dividends paid back to the shareholders.

Some people enjoy the thought of being part owner of a big company or even a company. It doesn't matter how big or how small the portion of ownership is. Some people take pride in being part owner of an emerging company and in time hope to reap the rewards.

Buying shares is a lot easier and cheaper compared to other investment such as real estate. I like to compare this to saying that you can't buy just a small part of a house, but you can buy share with as little as $500.

Shares are a lot less hassles and you know exactly what they are worth every day. Unlike real estate where you have a value given, but may not get a sale and even if you do you have to wait. Shares can be sold in minutes and you receive your money in 3 days.

There are plenty of choices in the share market from mining to automotive and anything in between. You build up a portfolio that's suits you with element of risk that you are comfortable with.

Some people just like the excitement of buying shares and see them raise by more then 100% and knowing they have been part of something special.

If you are good enough you can make a living out of shares and enjoy the lifestyle of being your own boss.

In some countries you get certain tax advantages.

These are just some of the reasons why people buy share.

It really depends on how comfortable you are in buying and selling shares yourself.

If you just started to learn about investing, you may need to go and find a full service broker to make sure that you are making wise investments decisions. A good broker will offer advice and recommend a list of stocks for you to consider.

They have the skill that you lack and /or trying to learn. They do have more knowledge, because they dealing with stocks everyday. Just be aware that the broker earns his money from commissions and may push the stocks where he earns the most commission on.

That is not to say that you can't do well yourself, but it takes time to figure it all out.

I myself have an online trading account, which allows me to buy and sell the stocks i want.

The cost for this is $19.95 per trade. Remember that buying and selling count as one trade each. With my Trading account i receive a number of tools which include a charting tool, some research tools and i can create watch lists for stocks I'm interested in.

The most important thing to remember is Do Your OWN Research and it is your money

When it comes to stocks or shares, most of the time you be dealing with what is called common stock. This is your normal share, which is part of your ownership of the company.
With this you are entitled to dividends, which is money from the profits you receive for holding stock in the company. You are also entitled to vote on matters of the company such elections of directors and how much they getting paid.
Now some companies have more then one type of shares called class A, class B. These shares give the owner more or less voting rights e.g. class A has more votes then class B. I know this gets a bit confusing and all i want to do here is make you aware of this fact that there are different types of shares.

There is one other type of stock, the preference or preferred stock.. With these stocks you can get paid more dividends, but the most important difference is that when a company goes broke preferred stocks get money before the common stock. Not that you hope that the company you investing in is going broke, but it does happen.

Feel free to correct me on this and i try to expand on this a little further in the future.

I have been looking at the Australian Stock Market for many years. In that time I never had the time to buy or deal in Stocks.

For a short period in 2004, I did have a go, but because of personal matters I had to pull out again.

Now that the Stock Markets have crashed, as they have done all around the world, I see this as a golden opportunity to enter the market again. I have saved up slowly over a period of time to have enough money to do it.

As with any investment, there is danger of losing money, because companies go bust. There are no guaranties that even a big, well known company doesn't go under and you are left with nothing. Just look at a couple of the big banks in America.

I do this for a bit of fun, but don't get me wrong it don't like losing my money either.

Some people consider trading in Stocks as gambling, but as Stock Market History Charts show, the Stock Market seem to recover and pass previous Stock Market highs after a period of time.

You never use money you can't effort to lose.

The advantage, I believe, Stocks have got over buying real estate, is that you can't buy just a room or sell one if you need to.

I saved up $500 to get me started and many people would say that you need at least $5000 or $10000 to get started. I opened an online broking account which cost me nothing and linked that to my bank account.
In the meantime i have taken out a $50000 Investment loan in the past 12 month.

Each trade cost me around $29 (this has changed to $19.95 as of May 2011), which is a bit better. Once i can save money up a little quicker I'll increase the parcel size from $500 to maybe $700 or more. The trade cost is still going to be the same $29 (now $19.95).

One other thing to remember is the cost is for one trade only. Buying and then selling are two trades.

Everyone has got a different theory on what is best. But if you just take your time and try to learn about the Stock Market you may find that it is quite interesting.
The main thing is not to panic if your shares go down a little. That what happen to me at first and when i bought my 2nd lot of shares they went up. You will get variations like that, it is called Stock Market Volatility
The most important thing to remember is to be patient and you haven't lost anything unless you sell. However there are time when it is better to take a loss, which i have taken over the time i have been in the market. I know it isn't easy to do that, as no one likes to lose money. There are a lot of emotions going through you when dealing with the stock market. That is the reason you start small to give yourself a chance to get used to the ups and downs of the daily share market rollercoaster.

Whenever you start something new, you need to give your self the time to learn. In order to make money on the Stock Market you need to get an understanding of the Stock Market or you can hang the Stock Market Listings on a wall and throw darts at the wall and buy what you hit. Some times I think that may not be such a bad idea.

The question is what are you looking for?

There are many Stock Market Tutorials available you just need to google them. Many places such as the Australian Stock Exchange offer free Stock Market Training, Stock Market Trading Software and Stock Market Tools.

Join online Stock Market Forums, get Stock Market Newslettersor read Stock Market Blogs, do what ever it takes, to learn just a little bit about the Stock Market, before starting to put a Stock Market Portfolio together.

The easiest way may well be to read the daily newspaper or for the more advanced person read the financial review or similar papers.

After you done a bit of investigating you may decide it is all to hard and complicated and forget about it. That may not be such a bad thing. At least you come to a decision.

However if you like what you seen and you can effort to buy a parcel of shares, then you have to decide what sort of Stock Market Player you going to be.

Two options spring to mind Stock Market Investor or Stock Market Trader. Both looking at different things, when looking at Stocks.

Stock Market Investors tend to look for the longer term (Years), which includes me, for Stock Market Returns with most people looking for Dividends and Stock Market Capital Gains.

Stock Market Traders tend to turn Stocks over very quickly, which could mean the hold on to a Stock for only a few hours, but hardly ever any longer then a few weeks.

I did have a go at this type of trading, but found it very hard and that i didn't know enough to jump into it.

The same applies to forex trading, which promises quick riches but can cost you a lot of money quickly.

Having said that I class myself as a Stock Market Investor and what are the things I look for?

These are the the indicators that I keep my eyes on, when I select a Stock I want to buy.

Dividend yield

Price / Earnings ratio P/E

52 Weekly high and Lows

Dividend history

Company History

Sector of the market

It is also important to note , that I do have a list of Stocks, which I am interested in. This list of Stocks changes all the time, as I add and remove Stocks as I need to, because of what I have read or what a Stock has done moving up or down.

Undervalued companies

Sometimes shares in a company fall quite dramatically and this may presents itself as an opportunity to buy shares. Recently I saw a health company which had fallen a fair bit in value something like 80% or so. When I checked it out the reason for the big fall was the very high debt level this company had and it was losing customers.
An announcement was made that the company was selling off parts of their business in order to repay the debt. I did buy some shares at around 50cents at the time. The value kept dropping to around 40cents and I thought I may have made a mistake, but kept the shares I had. Then the company announced a special divided and promptly the share price started to raise.

Now an interesting thing happened. The dividend was about 33% of the value of the shares and I knew the shares would normally raise under these circumstances.

I wanted to buy some more to get some more of these dividends plus I would average down my holdings, because the share were still cheaper then the one's I had bought earlier.

Note: Averaging down is in general not a good practice

When I finally had the money to buy the share the price had dropped dramatically again. First I thought everyone made a mistake and the price dropped to early only to realize that I was the one who made the mistake. Anyway I bought them anyway, because as it normally happens after a dividend is paid the share price drops accordingly. I will explain my mistake a little later on this lens.

This all happened about 2 months ago. I did buy enough shares to average down to about 39cents and the shares are worth 53cents today (july2011). that amounts to a gain of about 36%. Don't know what the future holds for this company, but I think they are well on their way to recovery and that should reflect in a further raise of the share price plus ongoing dividends

This seemingly simple term, without an explanation, can be rather confusing to a lot of people and I'll try to explain in as simple terms as I can.

My daughter ask me the other day "Dad why do you spend so much money on shares? Wouldn't you be better off putting all the money in the bank and let it earn interest?" What she doesn't understand, is that by buying shares, some shares will paid dividends at a lesser or better rate then the interest you receive from a bank.
Sorry for getting a bit side tracked here, but i think a lot of people would say exactly the same thing.

Lets look at an example on how it works and how you make the money.

On Monday you buy 100 shares in company xyz for say $10. You just have spend $1000. Right? If you had put this money into your bank account you would think you get anywhere between 0 to possibly at best 5% in interest. This would make it at best $50 for 12 month.

Depending on the company you could get anything between 0 and 10+%. Rubbish I hear you say. Not so as I have 3 companies in my share portfolio which paying over 10% per year. At 10% that makes $100 or $50 more then the bank would give me at best.

Now here comes the additional bonus. In 12 month time your shares you bought at $10 could be worse $11 and your total value of share is now $1100 plus your dividends of a $100 = $1200. I know I can hear you say share prices don't just go up and that is correct. The price could drop to $9 or even $8 or more. They can stop paying dividends or lower them. that is all correct, but the banks do the same with the exception that your $1000 will still be a $1000.
That why it is so important that you do a bit of research for yourself and you only do it if you have an interest in it.

Another little story I like to share. A few days ago I heart about this lady and she bought 100 000 shares in an up and coming company ( i'll try to find the details ) for 10 cents each at a total of $10 000. As it happens and the same thing seem to happen to me to every time I buy shares, the shares fell from 10 cents to 8 cents. She lost $2000 and sold them and you may think she was lucky only to lose $2000.

These shares went on to be worse around $8 some18 month later. The 100 000 shares would have been worse $800 000. Now it don't know the full story behind the company, but i'm going to find out and update this story.

Where do you find these high yielding companies? Most newspapers have a finance section and that where you find it looking under the dividend yield column. I'll add a bit more as i go along.

What does active trading mean? It means that you take a far more active role in trading shares. You looking in making money by quick upwards movements in a share price. As an investor i am looking for the dividends and a raise in the share price over a number of years. An active trader looking into doing deals in days or weeks. Dividends are a bonus in active trading.

The main tools of a trader are his chart and patterns which will tell him what to buy and what to sell. You find many trading programs offered by people and the promises of quick riches. Be aware that trading is a risk to your wealth.

You have to remember for every person who is making money, someone else has to lose money.

The biggest point about being a trader is that you need to be very disciplined.