How to earn money by trading stocks?

Trading in stocks is more popular than ever. By actively trading in stocks, you can earn money. At the same time, it is important to remember that investing is risky and you can lose money. In this article, you will learn everything you need to know about day trading in stocks.

What are stocks?

When a company wants to raise money, it can decide to issue shares. Stocks are securities that indicate that you are a co-owner of the company.

Stocks are traded on the stock market. Through the game of supply and demand, a price is established. Do you want to read more in detail what stocks are? Then read this article!

How can you make money trading stocks?

  • Price gains: you can buy stocks at a lower price and then sell them at a profit.
  • Dividend: companies sometimes pay out a portion of their profits to shareholders.

Before you can start trading stocks, you need an account with a broker. A broker allows private investors to buy and sell stocks. Are you curious about which brokers you can invest with? Click on the button below:

Determine a strategy

Strategy 1: Day trading in stocks

As a day trader, you buy and sell stocks in the short term to speculate on both rising and falling prices. Some day traders buy and sell stocks on the same day.

With many brokers, you can short sell: you then speculate on a falling price. This allows you to react to the latest developments in the market.

Curious about how you can start day trading yourself? Then read the article become a day trader.

Strategy 2: Building an income from stocks

It is also possible to build an income with trading stocks: this is also called dividend investing. Companies that achieve steady profits often choose to pay out dividends. A dividend is a payment of a portion of the profit to the shareholder.

Strategy 3: Dollar-cost averaging

Especially for novice investors, dollar-cost averaging can be a good strategy. You then invest a fixed amount every month: in this way, you prevent investing a large amount at the top of the market. ETFs are attractive for this, as you can trade in numerous stocks at once. Click here for more information.

The best strategy

There is not one best strategy. However, few people consistently make money from active trading. Investors who invest a fixed amount periodically often achieve the best results.

The smart, active trader does not only engage in day trading. It can be very wise to lock in a portion of your profits in stocks for the long term. This way, you build up both wealth and income.

The tip of the day for trading stocks is to not invest all your money in one strategy. This way you increase your chances of success!

Create a good plan

Before you start trading stocks, it’s important to create a good plan.

It’s essential to only invest money that you can afford to lose. Determine your budget for trading stocks.

Then, create a plan for the long term. For what period do you want to invest, and how much risk are you willing to take? Answer these types of questions for yourself before you start investing.

Open your first stock trade

When you have opened an account with a broker, you can open your first stock position. Select the stock you want to buy within the broker software and enter the amount you want to invest.

You can use two types of orders:

  • Market order: you buy the stock directly at the prevailing price.
  • Limit order: you buy the stock at a specified price.

In the screenshot below, you can see what placing a stock order looks like at a broker.
Make money stocksWhat are the risks of stock trading?

  • Declining stock prices: stock prices are constantly changing. During an economic crisis, you can lose a lot of money (temporarily) with your investments.
  • Exchange rate: when you invest in US stocks, you exchange euros for dollars. When the euro subsequently loses value, you lose money.
  • Bankruptcy: some companies go bankrupt: when this happens, you lose the amount you invested.

Learning to trade stocks

No one is born a successful stock trader. You will need to practice a lot to become good at trading stocks.

Price formation on the market

Stock prices are determined by the constant interaction of supply and demand.

For example, the demand for oil stocks increases when demand for this commodity rises. This was evident during the invasion of Ukraine by Russia in 2023. Concerns about supply drove the price of Shell stock up, for example.
Trading Shell stock

When you want to achieve good results with trading stocks, you need to keep an eye on market developments.

Two techniques

Fundamental analysis: when you want to buy stocks for the long term, you can use fundamental analysis. You then investigate the financial situation of the company. This is important when you want to hold stocks for a longer period.

Technical analysis: when you want to engage in day trading, technical analysis may be interesting. With technical analysis, you look for recurring patterns on the chart that you can use to determine good entry points.

Some final stock tips

1. Follow the trend

As a trader, you naturally want to make money. A first important tip is to follow the trend as much as possible. When the markets have been rising for months, it can be very risky to speculate on a decline.

2. Use a stop loss

A second stock tip for the active trader is to always use a stop loss. With a stop loss, you can set a value at which you automatically take your loss. This way, you prevent losing your entire investment due to one bad investment.

3. Be patient

The third tip is not to count your riches too quickly. Investing is truly a skill, and the only way to really learn to invest in stocks is by practising a lot. You can do this, for example, by opening a free demo account with a broker.

4. Understand the risks

The fourth tip is to remember that more profit often also means more risk. When you use speculative investment products, the chance of losing a substantial amount is greater. Therefore, only invest in a way that suits your personality & risk profile. Can’t sleep because of your substantial stock losses? Maybe you should do something else.

5. Deal with volatility

Finally, it is important to emphasize the difference between the average return and the total return. On average, people who buy stocks achieve a return of 8% per year.

However, this does not mean that you achieve this return every year. One year, as an investor, you may achieve a return of 30% while losing 20% the following year.

Learn from my experience

When I was young, I first thought I would become rich by trading stocks. I opened an account with Plus500 and started trading with a few hundred euros. I barely had a strategy: I looked at the chart and, based on price patterns, I randomly opened stock positions.

Sometimes this went very well. When I was at school, I looked at my phone and saw that I had earned €800 with a stock position, while I had only invested €100. I used a leverage which allowed me to take a larger position

It is therefore important not to get rich too quickly. You can certainly earn a lot of money by trading stocks, but the risks are also significant. Only trade with money that you can truly afford to lose.

The majority of active investors ultimately lose money with stock trading. Therefore, only speculate with money that you truly can afford to lose!

Mistakes that cause you to earn nothing with stock trading

1. Waiting for it to be safe

Investing in stocks is never safe. If you wait until it is safe, you will miss the boat. In times of crisis, you can make a lot of money by investing. It is essential, however, that you make good decisions. Fear is a strong emotion, but where has fear brought humanity?

2. Waiting for a lower price

The stingy investor does not even buy a stock when the price is attractively priced. The fact is that no one can predict how the stock price will develop. Do you see an opportunity? Then now is the best time to buy. Whether the price will fall further… no one knows.

3. Trading only in cool stocks

Amateurs only trade in cool stocks. Buying and selling shares because you like the brand is not a winning strategy. Consider whether the company and the stock have the potential to make a profit in the future. If this is the case, you can decide to buy the stock.

4. Trading with money you cannot afford to lose

Only trade stocks with money that you can afford to miss for a longer period of time. Stock market prices are unpredictable, and in the short term, you can lose a lot of money. Therefore, always read up on the risks!

Frequently Asked Questions

It is possible to earn a lot of money by trading stocks. However, keep in mind that risk and return are inseparable. When you take big risks, the chance of a big loss is also present.

If you have sufficient time and capital, you can become rich from shares. If you had invested $1 in 1900, you would have more than $100,000 now in 2023. However, it is important to select the right stocks. If you had invested that dollar in a company that went bankrupt, you would end up with nothing, of course.

Did you know this about day trading?

Day trading is a special method of stock trading; you often buy and sell stocks on the same day.

Did you know this about day trading?

  • You can do day trading 24/7: determine your own working hours!
  • You can buy and sell shares within a few minutes.
  • Even when a stock is performing poorly, you can make a profit.
  • You can try day trading without risk using a free demo.

If you want to start trading stocks, it’s wise to try it out first with a free demo. Use the button below to examine which brokers offer a free demo:

Try trading risk free?

Auteur

Alex Mostert Avatar
Over Alex Mostert

When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about trading.info! Don’t hesitate to leave a comment under this article.

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