Buying And Selling Stocks: 6 Steps Beginners Guide

Posted by Stephanie Snyder on May 24th, 2021

However, it’s not a good idea to simply jump into the markets without learning the basics first. With that said, the following six steps are what every beginner should follow when trading stocks for the first time.

1. Research the Company

Your first order of business should be to look at what products or services a company is offering. Trends and consumer demands change, so you should gauge whether the company’s business model is likely to continue doing well over time.

You should also check the company’s financial records publicly available through most online trading platforms. You’ll be able to examine a company’s quarterly earnings reports, their current debts, and their total assets to ensure that the company is earning enough and holding enough assets to meet any debt obligations they may have.

2. Calculate the Intrinsic Value

Sometimes stocks can rise in value based on hype or excitement based on breaking news, which isn’t always reflective of how well a company’s products or services performed. To calculate a stock’s intrinsic value, you can multiply its trailing 12-month earnings per share (TTM EPS) by its P/E ratio (Price to Earnings ratio).

Next, divide the stock’s current share value by the number you received in the previous calculation. A 100% result would mean that the current share value is aligned with the company’s current earnings or intrinsic value. A 200% result would imply that the stock may currently be overvalued.

3. Risk vs. Reward

In investment circles, “risk vs. reward” is a commonly used phrase. It refers to whether the reward you stand to gain from an investment is worth the risk you may experience if things don’t go as planned. This is why you should carefully analyze each stock to calculate how much you stand to gain, and more importantly, how much you might stand to lose.

If you think you don’t have the stomach for risk, you may want to instead look into safer investments, such as a Delaware Statutory Trust (DST). What is a DST? It’s one way to diversify your investment capital by allocating it into a trust, which holds titles to many different investment real estate properties.

4. Check Analyst Recommendations

Stock analysts are financial advisors that often work for banks or large financial companies. They give their opinions, based on their analysis, on the values of specific stocks.

Although their forecasts are not always correct, you can at least be forewarned about a company if you see that many stock analysts feel that it may not perform well for a given quarter. While a company can surprise analysts and beat their expectations, the odds are more in the analysts' favor if most agree on a particular stock.

5.Buy the Stock

When purchasing any stock, you’ll want the share value to be at a bargain price. Many new investors end up buying their first shares in companies that are already overvalued or currently at their peaks. Patience is key. If you don’t feel that the current share value is a good value or accurate reflection of a company’s current worth, you should hold out and wait until it is before you buy any shares.

6. Sell the Stock

Most professional stock traders have already chosen their exit point before they’ve even purchased a stock. Before you’ve decided to buy a stock, you should determine what price you plan to sell it. This is because you want to remove emotions from stock trading, as this can affect your decision-making process. Know your exit point, and use what’s called a “stop-limit order" in your stock trading platform or app to set a sale price in advance.

A Parting Tip

While trading stocks as a beginner may seem daunting at first, you now have a set of steps you can follow that many beginners simply aren’t provided with when starting. After you’ve purchased your first stock, you may want to diversify your capital by repeating these steps with other stocks.