Share Trading Basics

• Investors who trade shares always devise a trading plan. A trading plan is a method used by the investor to screen and evaluate stocks while deciding the proper risk tolerance. The trade plan should include a time horizon. There are numerous trading strategies that can be utilized for different situations or styles of trading.

Day Trader

• A day trader is an individual trader who holds one or more stocks for minutes to hours. Positions are usually bought and sold within the same day. Day trading is risky and involves many trades daily to maximize profit in incremental changes in stock price. Day traders can also short a stock hoping that the stock's value decreases. Day traders constantly screen and evaluate stocks to look for momentum. Once an entry point is spotted, the day trader will buy a position and then sell before the momentum is reversed.

Trading on Margin

• Share traders can use margin to increase their purchasing power. Margin is a loan from a brokerage, which gives the investor more capital to trade with. Let's say an investor purchases a stock at $20 per share and gains $10. The profit increase is 50 percent. If the investor purchased the stock on margin (50:50) then the increase is 100 percent. Trading on margin greatly increases the profit potential, but it also greatly increases the risk for losses. If the stock declines then the investor owes the margin issuer the lost money plus any interest that occurred. Margin traders use their stock as collateral. If an investor cannot pay their margin back, then the investor's holdings will be sold to pay back any money owed.

Technical Analysis

• Technical analysis is a method of evaluating securities by using past data to determine future results. Technical analysts use previous charts, trading volume and stock prices to predict where the stock will currently trade. Investors can trade using technical analysis. Trading stocks while using technical analysis can be done by using sophisticated software, such as MetaStock. These high-tech software options analyze stocks in a fraction of the time an investor could, as well as back test technical trading strategies.