How To Buy And Sell Stocks Online – The Profitable Strategy With Low Risk

Spread the love

Let me start by asking you this question. What is the present value of a stock? It is what someone is willing to pay for it. In doubt what causes the price to change? What the buyers and sellers THINK about a stock (People’s Sentiment). click here to read more on how people sentiment move stock price.

The sentiment is from people like you and I and they are called buyers & sellers. People are extremely predictable and are driven by emotions. Let me narrow down our emotions to Fear and Optimism. Fear is the main force;

  • the fear of loss of opportunity
  • the fear of loss of capital

The emotion from the buyers and sellers causes market zone which we previously discussed and it is called the Support – The price point where a stock finds more buying pressure than selling pressure, and the buying pressure drive drives the price higher (Bullish). And

Resistance – The price point where a stock finds more selling pressure than buying pressure, and the selling pressure drive drives the price lower (Bearish)

Winning more Trades – Buy and Sell Stocks

I have always wanted to win my trades, at least more than lose. This is why you are reading this post. You want to know how to win  and become a profitable trader. Overcome your fear of missing opportunities and losing your capital. Stock price move in 3 directions, there is no fourth direction.

A stock price will move upwards, downwards or sideways. You have to get ride the market just like a surf boarder. Never surf boarded but I intend to have a go one day. Imagine you riding the wave in the right direction as a trader; you win and put more money in the bank.

The goal of every trader is to win and make profit. It is easier to arrive at profit by

  • Pick your stock direction
  • Apply an appropriate strategy to your trade.

“Support & Resistance help us determine the framework, which allows us to pick a direction. Now we must pick a winning strategy!”

Enough of the theory do you want to practise some skills to buy and sell stocks? Let us take practical steps to enhance your skills and knowledge to prepare you for real success.

Baby Steps – Practise brings Expertise

When do we buy and sell stocks? I buy when a stock is moving higher (Bullish) and sell when a stock is moving lower (bearish). So simple.

It means I can give orders to buy or sell stocks. Buy order is an order to buy a stock while Sell order is an order to sell a stock. This is what happens when you buy a stock – your cash goes out and your purchased shares come in. When you sell shares – Shares go out and cash comes in.

Buy and Sell Stocks Order
Cash Stock Value
Opening Balance £10,000 £0
Buy 100 shares of ABC @ £50 -£5,000  + £5,000
£5,000 £5,000
Sell 100 shares of ABC @ £55 +£5,500 0
£10,500 £0

Remember, what the goal of profitable trade you need to pick a direction and a strategy. There are two stock strategies

  • Long strategy – Use when you want to make a profit while the stock rises in price
  • Short strategy – Use when you want to make a profit while the stock falls in price

Example: Green Line is the buy or Long position while you have 2 exits for profits.

Buying Long – Buy to open and sell to close
Cash Shares Equity Total
Opening Balance £20,000 0 £0 £20,000
Buy 100 shares of ABC @ £18.00 £1,800 100@ £18.00 £1,800 £20,000
Balance £18,200 100 @ £18 £1,800 £20,000
Balance £18,200 100 @ £30 £3,000 £21,200
Sell 100 shares of ABC @ £30.00 £3,000 -100 0 £21,200
Closing Balance £21,200 0 0 £21,200

Buying long has two types of orders;

  • A buy order: This initiates a new long trade
  • A sell order: This closes a long trade

The second strategy is called Selling Short. This is the opposite of a long trade strategy; it simply means to sell a stock. This is a case where you do not own the stock but you borrow a stock & sell it, logically you must eventually buy it. Unlike the long strategy where you get dividends you do not receive dividends and to make profit in this case you will need the stock to go down in price.

Example: The red line is the place to Short or Sell

Selling Short – Sell to open and buy to close
Cash Shares Equity Total
Opening Balance £41,200 0 £0 £41,200
Sell / Short 100 shares of ABC @ £245.00 £24,500 -100 @ £245.00 £24,500 £41,200
Balance £65,700 -100 @ £245 £24,500 £41,200
Balance £65,700 -100 @ £205 £20,500 £45,200
buy 100 shares of ABC @ £205.00 -£20,500 +100 @ £205 £20,500 £45,200
Close Balance £45,200 0 0 £45,200

This is called a short because you do not own the stock (you owe it!), so how can we sell something we don’t own? Simple answer is Borrow it!

This is a legal trade because it is the rules of the game and by doing this a liquid market is created thereby insuring the free market. It is also moral because it is called a market so someone sell and someone buys.

Similar to buy long, selling short have two types of orders

  • A sell (short) order: This initiates a new short trade
  • A buy (to cover) order: This closes a short trade
Buying Long vs. Selling Short
Long Trades Short Trades
Own Stock Borrow Stock
Receive Dividends Owe Dividends
Bullish Bearish
Price of stock to go up for profit Price of stock must go down to profit
Hold stock as long as required or forever Must return the borrowed stock

Setting up a Trade – Buy and Sell Stocks

Setting up a trade with the explanations now funnels to initially picking a stock and as previously discussed analyse the chart. Following the chart analysis to understand the market sentiments you pick the direction of trade and apply the right strategy as discussed in this post.

This is easy and simple. I almost forgot, remember to apply a stop loss to all your trade this is the popular key to your risk reward ratio.

What is a Stop Loss?

A Stop loss is an order that “protects” your capital if a trade goes bad, if our the trade moves in the wrong direction, the stop is triggered and your position is liquidate, meaning you do not lose more than you are ready to lose in another term, you do not  risk more than you have capacity to risk.

Stop loss order for a bullish or in a long trade, the stop goes BELOW the trade

Stop loss order for a bearish or a short trade the stop goes ABOVE the trade

In conclusion

This is what I recommend you do to understand all we discussed. Initially open a virtual account and start practicing buying a stock long, selling a stock short, setting a stop for each and remember do it all on a by initially reading my post on charting and help you open virtual free account.

9 Replies to “How To Buy And Sell Stocks Online – The Profitable Strategy With Low Risk”

  1. A really interesting article that has explained a lot to me about trading on the stock market with smaller risks. 

    One question I have is this – wouldn’t it be better to just buy stocks (go long), as most big companies are always looking to expand and improve…so their price will go up eventually? (if you can afford to hold of course!)

    1. Traditional method of buying stock is to buy and hold. Yes you can alternatively you can use covered call options to make money averagely an annual yield of 8 percent on your owned stocks. Think about it.

      I intend to provide details of this option method in coming posts. Watch out.

  2. Hi I tried to trade stocks and shares in the past with little success. I think it’s more about mental discipline than technical know how. Although both are important. You cover some good basic technical aspects but I look forward to you writing about what you need to do mentally to be successful trading. Thanks Kenny 

  3. I love it how you explain the stock price movements in such an easy to understand way. A stock price will move upwards, downwards or sideways. You have to get ride the market just like a surf boarder.  I surf and hate getting crunched by the waves and also by the stock market.Wow, thanks for sharing the links to the virtual account, that’s a great way to practice trading.  Do you recommend doing that before trading with any of our real money?Is that how you started too?  Thank you

    1. I strongly recommend virtual trading before using real money. I started out same way. Virtual trading before Real trading. Any questions do not hesitate to ask.

      Thanks

  4. Greetings!

    What a great article! People are always afraid of the downside when stepping into the investing arena. This article spells out a clear and simple strategy to get started.

    I think investing in stocks should be part of everyone arsenal in developing multiple streams of income! Great read!

    Steven

  5. The stock market and investing in shares has always been an area that has fascinated and scared me all at the same time. It can seem a really complicated process but you’ve explained it in such a simplistic manner so I understood most of what you were saying here. I’ve always considered buying and selling shares as a bit of a gamble, especially when I would have no idea what to purchase or how much of a particular stock I should invest in. Although the Stop Loss order sounds reassuring as it sounds like you can’t lose too much with one of these in place. The thought of trading online scares me because I would not be getting any kind of guidance from someone who knows what they’re doing . I may be overcomplicating it but I am genuinely interested in learning. I know that signing up for a virtual account doesn’t cost anything, but what would you suggest I purchase for my first trade and how much should I invest? I am from Australia so will that have any impact on how I go about this? Thanks for the information, Rachael

  6. I have always wanted to get into the stock market. For me, it has always been an issue with money. Can I start out super small, with a very small investment and work my way up? Is it possible to make enough with a small investment, to eventually make larger and larger investments. And what would you say the very minimum is for investing in a stock?

  7. Thank you, for your informative article!

    Your illustration does make everything seems clearer!

    I have tried to purchase some stocks not long ago but the market just sort of crashes recently. I actually bought some Facebook stocks but ugh, after all the bad news, it basically looks kinds shitty now (sorry for my foul mouth). Hmm, do you reckon it’s coming back up?

    Crystal

Leave a Reply

Your email address will not be published. Required fields are marked *