Thanks to modern technology, actively trading stocks is easier than ever. Most brokers allow you to trade stocks via telephone, Internet and even on your mobile phone. While the process of buying and selling stocks is easy, however, selecting the right stocks and managing a portfolio requires a great deal of work.
Select a Broker
The first step in trading stocks is to open a brokerage account. Although the commissions have declined significantly with the advent of online trading, as an active trader you should still cross-shop to find the most competitive package. Some brokers offer a number of commission-free trades when you first sign up, while others may offer particularly low rates if you exceed a specific number of trades over a set period of time. Also spend some time on the website of each broker to see which interface you feel most comfortable with. If you will mostly trade on your mobile device, check the mobile interface as well.
Open an Account
Once you select a broker, open a brokerage account. The documents you must fill are always available on the website of the broker. Note, however, that you must print these forms, fill them out and sign them before mailing them in. Since a hard copy with your signature is required, you may not complete the process online.
Pick a Few Stocks
An active trader buys and sells stocks far more frequently than a long-term investor. The active trader must therefore be intimately familiar with short-term price patterns of specific stocks. Start by selecting three to 10 stocks and study the issuers. What do the balance sheets of the issuing companies look like? What are the strengths and weaknesses of these companies and what are their long-term objectives. All the data you need is available in the documents you can access freely on finance portals such as Yahoo Finance or Google Finance.
Pay particular attention to how each stock reacts to general and stock-specific news including Federal Reserve Board announcements, dividend decelerations and quarterly profit/loss figures.
Once you think you have a feel for how the shares move, commit only a small amount of capital to short-term active trading and get your feet wet. At first, trade with only the money you can truly afford to lose. It is unlikely that you will lose the entire capital, as stock prices rarely go down to zero. Knowing that even a complete loss of your active trading capital at this stage won't be the end of the world will take the pressure off your shoulders.
Vary Your Strategy
Active traders employ various strategies to capitalize on short-term and intermediate-term price fluctuations. Some buy near market close and hold shares overnight while others close all positions before the end of regular trading hours. Some trade a single stock for a while and then move to a different company, while others find it refreshing to follow at least a few stocks at all times. Try various approaches until you develop a style you feel comfortable with.
Hunkar Ozyasar is the former high-yield bond strategist for Deutsche Bank. He has been quoted in publications including "Financial Times" and the "Wall Street Journal." His book, "When Time Management Fails," is published in 12 countries while Ozyasar’s finance articles are featured on Nikkei, Japan’s premier financial news service. He holds a Master of Business Administration from Kellogg Graduate School.