Trading Up-Close: Getting Started as a Trader

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Onscreen text: Trading Up-Close

Onscreen text: Where Do I Even Begin? [alt: Getting Started as a Trader]

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Onscreen text: Kevin Horner, Senior Manager, Trading Services Education

KEVIN: The popularity of stock trading has seen a massive uptick with investors of all skill levels. Along with their interest come a lot of questions, about what it takes to be a trader, the demands of trading, and how to get started. 

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Onscreen text:

• What it takes to be a trader
• The demands of trading
• How to get started

KEVIN: We’ve put together a series of videos to address those questions and help you decide if trading is right for you. We’ll also look at building your knowledge base and taking those first steps. So let’s get started and explore what’s at the core of trading.

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Onscreen text: What’s at the core of trading?

KEVIN: It might seem that trading is just next-level investing, and in some ways, it is—but there are significant differences.

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Onscreen text: Investing and trading have different time horizons and use different strategies.

KEVIN: For instance, while both investors and traders are looking to make a profit on the money they put into the markets, they have very different time horizons and use different strategies.

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Onscreen text: Investors take a long-term view of building wealth over time through gradual appreciation in the market.

KEVIN: Investors take a long-term view of building wealth over time through gradual appreciation in the market.

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Onscreen text: Investor portfolios often consist of exchange-traded funds (ETFs) and mutual funds—but may contain individual stocks.

KEVIN: Their portfolios often consist of exchange-traded funds (or ETFs) and mutual funds, but they may hold individual stocks, as well. Sometimes picking individual stocks starts to feel a bit more like trading.

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KEVIN: Have you ever started using a new product and soon all your friends are using it too? It may get you to thinking, “I should own stock in this company.” Well, you just took a step into the world of stock picking by identifying a company that may be on the move.

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Onscreen text: STOCK PICKING

KEVIN: Now, if you are interested in adding it to your portfolio and holding it for years, you are thinking like an investor.

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Onscreen Text:

Investing

• Long-term approach
• Often buying and holding

Trading

• Short-term strategies
• More frequent transactions

KEVIN: But, if while you are thinking about buying it, you are already thinking about when you will sell it for a profit, well, now you’re thinking like a trader. At this point, as a trader, you will look at the price of the stock to see where it is relative to where it could be in the future―and that future date is however far out you are willing to hold it. Could be a few days, weeks, months.

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KEVIN: Traders are always thinking about price―that means they are assessing whether the stock is over- or under-valued in the moment.

Onscreen text: Traders assess whether the stock is over- or under-valued in the moment.

KEVIN: And they are considering how soon the value is likely to change, because their goal is to turn a profit quickly.

Onscreen text: Their goal is to turn a profit quickly.

KEVIN: But trader’s face day-to-day fluctuations in the market—and that opportunity for a quick profit … well, it comes with the risk of a quick and complete loss.

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KEVIN: This highlights how important it is that, along with your trading, you’re investing for the long term.

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KEVIN: While it’s true that risk is inherent in all investing, if you’re a long-term investor, you can help reduce your risk with diversification

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KEVIN: Additionally, you have the benefit of time on your side. Because over time, markets tend to go up, so even if you have an overall setback or losses among your holdings, a well-diversified equity portfolio is still likely to grow. Now trading isn’t for everyone, so before you place your first trade, be sure you can answer yes to a few key questions.

Onscreen text: Key questions

Onscreen text: Do you have a real interest in how the markets behave?

KEVIN: Do you have a real interest in how the markets behave?

Onscreen text: Are you sure you want to invest in a more hands-on way?

KEVIN: Are you sure you want to invest in a more hands-on way?

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• Vocabulary
• Analysis
• Orders
• Strategy

KEVIN: To be successful at trading you will need to learn a whole new vocabulary, how to analyze stocks, the various order types, and strategies for when to buy and when to sell. It can be a steep learning curve—are you up for it? And once you have gotten up to speed with the “how to” part, do you have the time required to actually trade?

Onscreen text: Do you have the time to actually trade?

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Onscreen text: General market news

Onscreen text:

Things that could impact stocks

• What the Fed is planning
• How the economy is doing
• Other macro trends

KEVIN: Because once you make a trade, you’ll need to follow general market news for things that can impact stocks, such as what the Federal Reserve is planning, how the economy is doing, and other macro trends.

Onscreen text: Company news

Potential price movers

• Earnings
• Proposed mergers
• Product rollout

KEVIN: Don’t forget about news for the company itself, like its earnings, proposed mergers, product roll out―anything that could move the specific stock’s price. 

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KEVIN: Your trading style will determine how often you place trades and how long you hold them―which runs the gamut from minutes to months.

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KEVIN: Trades with an especially short window could require constant monitoring throughout the day. But even with a somewhat longer window, it’s still best to keep a close watch, because the market can move very quickly. Emotionally, can you handle the day-to-day machinations of the market and take an analytical and methodical approach?

Onscreen text: Emotionally, can you handle the day-to-day machinations of the market?

KEVIN: Do you have the discipline to set a budget for your trading and stick with it?

Onscreen text: Do you have the discipline to set a budget for your trading and stick with it?

KEVIN: We’re talking 10-20% of your total portfolio, because even if you’re trading regularly, you should be investing for the long-term as well.

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Onscreen text: Set a maximum percentage of your trading budget for any one trade.

KEVIN: And then use a maximum set percentage of your trading budget for any one trade.

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Onscreen text: Never commit more money than you can afford to lose.

KEVIN: It’s important to adhere to specific limits so you never commit more money than you can afford to lose. At this point you may be thinking that between your work, your lifestyle and other commitments, trading just isn’t for you―and that’s OK. You can still be involved in your portfolio, make sound decisions on what to add, when to take profits, when to rebalance, and watch your account grow over time. But if you are comfortable with the level of commitment trading requires, we have a series of videos to get you on the road to trading.

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Important disclosures

The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of investment strategies mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. 

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

Examples used herein are not intended to represent the past or future performance of any specific strategy.

©2021 Charles Schwab & Co., Inc. (“Schwab”). All rights reserved. Member SIPC (1021-1J3A).