by Lawrence Sanchez

Created on: March 30, 2010

First and foremost before you start doing anything when it comes to stock, you have to read and practice the tools you have learned. How can anyone walk blindly into something without knowing something about it. At the least you need to know something about fundamentally analyzing a company. If you can correctly analyze a company you want to invest in a lot of the risk could be lessened. After you know how to do your fundamentals,learned stock market terminology and have done some paper trading then you should be ready to move on to step two.

Step two is choosing how you want to purchase the stock you want to buy and allocating funds to do it with. Choosing the way you want to trade is important, there are so many different avenues in which you can go. On-line brokers such as Etrade or Scottrade are great ways to begin or you can choose to go through a human trader who you can physically talk to and plan what may be best for you. Some people need that human contact, other prefer to save the money and do it themselves. Once you have chosen how you purchase your shares then you will need to find the funds to do it with. The money you use to buy stock should be money that you have saved specifically for that and not money taken from paying your bills. It is so much easier when the money that your spending doesn't adversely effect your bottom line.

Once you have learned how to do your homework, practiced paper trading without real money,picked how you will buy your shares of stock, and set aside funds to do it, then you will need to choose the companies you want to buy into and get diversified. Diversification is when you are designing your portfolio, you pick companies from different sectors or industries that do not directly hinder each others performance. This is important because, lets say you have bought into five companies and all of them are in the banking industry, what would happen if the banking industry crashes because of bad news? The answer is your money would be on the decline until that industry finds away to correct that bad news and right itself. It could take a while for an industry to fix it's problems and become profitable again. No one wants to look at their portfolio day after day for long periods of time doing nothing for them but loosing money, that why diversification is important. Well diversified portfolio's tend to make more money faster and lose money slower. The reason why this happens is because on a regular day in the stock market, not all sectors go down and the ones that are not going down are most likely going up. This is great because if you have three companies in your portfolio going up and only two going down then your total portfolio is probably going up as well.

After you have done all of these previously mentioned items then you have to know when to sell. Selling is important because unless you sell you will not get any profit. This is where it is important to know about technical evaluation and how to read a stocks highs and lows to determine an entry and exit price. When you have determined your particular companies average lows and average highs you can pick your entrance and exit prices with a lot less risk to your investment dollars.This evaluation will also give you a basic time-line in which you may be able to see some return.

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