Investing in the stock market can be an excellent way to generate wealth and safeguard your financial future. But with confusing financial jargon like ‘arbitrage’, ‘debt-to-equity ratio’ and ‘exchange-traded funds’ to wrap your head around, taking your first steps into its tricky waters might seem a bit overwhelming.
However, the key to making money from buying and selling equities is to learn how to read the stock market. While it is not a cast-iron guarantee that you will achieve a good ROI, the more you know about its inner workings, the more successful you are likely to be.
Yet, for all its confusing terminology, it is now easier than ever to understand how stocks work. That’s because, thanks to podcasts, blogs, YouTube videos, and investment apps, there is a wealth of information out to educate yourself on the significance of things like the current TLS share price.
To save you some time, here’s a simple guide to help you get started.
1. Understand the Basics
Before you make any kind of investment, it is important to know what you are getting yourself into. To do this, you should take some time to understand exactly what a ‘stock’ and the ‘stock market’ is.
Essentially, a stock, or share, represents a small amount of a company that, if you purchase it, will give you a little bit of ownership.
These shares have a purchasing price attached to them, which you can buy or sell at any time. This price is open to fluctuation, depending on a range of market forces, but predominantly how well the business performs.
When you own shares in a company, you are entitled to a portion of its profits, which may be paid out to you as dividends – the value of which will depend on how many shares you have.
Ultimately, your aim should be to sell any shares you have at a much higher price than you previously bought them for.
2. Get Familiar with Key Terms
As touched upon earlier, the stock market has its own language. Nasdaq.com has a glossary of 8000 terms and definitions on its website that relate to this entity.
While you won’t need to learn them all, it is important to get a grasp of some of the ones that are most commonly used.
They include the aforementioned ‘dividend’, which is a portion of a company’s earnings paid to shareholders, and ‘Market Capitalisation (Market Cap)’, which refers to the total value of a company’s shares. (Larger companies tend to be more stable, while smaller ones might have higher growth potential.)
Others to get a handle on include ‘Bull Market’ and ‘Bear Market’, which signifies that stock is rising or falling, respectively, and ‘Ticker Symbol’, which is a unique identifying set of letters that represents a stock (e.g., AAPL for Apple).
The more you can familiarise yourself with these terms, the easier it will be to follow the market and understand financial news.
3. Learn to Read Stock Charts
Stock charts are visual representations of how a stock has performed over time, and while they might look confusing at first, they’re incredibly useful once you understand them.
The main things to look out for are the price line, volume and moving average.
Price Line shows the price movement of a stock over a selected time period, while volume highlights the number of shares being bought or sold. (High volume often signals strong investor interest).
Moving Average smooths out price data to create a clearer picture of a stock’s trend over time.
By studying these charts, you can get a sense of whether a stock is trending upward (bullish) or downward (bearish) and make a decision on your investments overall.
4. Start with Index Funds or ETFs
For beginners, investing in individual stocks can be risky. Therefore, a good way to start doing so is to pick specific stocks, index funds or exchange-traded funds (ETFs) because these are collections of many stocks, which reduce your risk.
An index fund, for example, tracks the performance of a market index like the S&P 500, which includes 500 large companies. This means you get exposure to a wide range of businesses and, thus, reduce the chances of losing money if one company performs poorly.
5. Use a Stock Market Simulator
Before putting your own money on the line, it is a good idea to try using a stock market simulator.
Doing this will enable you to practice buying and selling stocks without losing any real money.
It can be a very good way to learn how the market works without fear of failure, until such time as you are ready to take the plunge on the real stock market.
Also, consider automated investing services to take the burden of decisions off your shoulders.
6. Be Patient and Think Long-Term
Perhaps the most important thing to remember is that stock market investing is a long game.
Given the volatile nature of the market, stock prices will naturally fluctuate on a daily basis, but that doesn’t mean you need to react to every movement.
Many successful, long-term investors adopt a buy-and-hold strategy, meaning they pick stocks they believe in and hold onto them for years. Doing this has even turned some one-time novices into millionaires.
