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How to buy and sell a stock with OptionsXpress by Charles Schwab or any other broker is something everyone should know. In fact, I think it should be taught in schools along with interest rates and savings. The stock market is one of the pillars of society, it is how business is grown and this country was built.
OptionsXpress by Charles Schwab makes trading stock easy and accessible to the average investor. They offer low rates and no account minimums so it is simple and affordable to gain access to the stock market. OptionsXpress also has all the tools needed to pick good trades and make profits. To get started all you need to do is sign up with some basic information. Once you've filled out the registration everything on the site is available to you. When your funds have cleared you will have full market access, based on your assigned trading level. There are more ways to trade in the stock market than simply buying and selling stock. Your trading level will reflect your knowledge of trading and preferred risk.
When you have your account funded the next step is picking and buying a stock. This can be a daunting task for some but by following a few generally accepted practices you can be trading profitably in no time. First you have to determine the underlying trend, then screen for an acceptable stock, check the charts and pick one that matches the trend and then set your order. It will take some time and effort to master trading, but anything worth doing always does. By practicing these steps you can become a savvy trader and beat the street.
Trading with the trend is the first rule any trader must learn. The trend is the direction in which the market is moving. Trends are determined by analyzing price patterns, most commonly done today with a chart. An upward moving stock is in a bull trend. A downward moving stock is in a bear trend. For the most part stocks generally trade sideways. This kind of price movement is described as “range-bound”. Stocks can make bull or bear moves from the extremes of these ranges up or down to the opposite extreme.
For simple stock purchases you want to look for bull trends. This is how trading stocks can make money. Identifying a bull trend and then buying the stock while price is low so you can sell it for more later. In a bearish market it is possible to short sell a stock. That is, sell it for a high price and then buy it back for less. There are also other, more advanced strategies that use options for making money in a sideways market. I am sure it easy to see how important identifying the trend can be. OptionsXpress has advanced charting that lets you look at each stock in several time frames, helping you get a comprehensive view of the market.
Once you've identified the trend it is time to pick a stock. This can be done with one of several tools available from OptionsXpress. They have several tools that screen using their proprietary software. The Dragon scans for stocks based on volume, open interest and other details important to market speculators. For stock picking I use the Screener. It allows you to screen stocks based on several market metrics. Price, volume, p/e ratio, dividend and sector are a few of the available criteria.
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Price is important because it can affect your decision in a couple of ways. If you pick a stock like Google, which trades around $600 you may limit yourself to how many shares you can actually buy. This is important especially if you want to use options in your strategy. You have to own at least 100 or a multiple of 100 shares in order to sell covered calls. Also, if you are buying stocks for dividends and wish to increase you holdings, price can impact how many you can buy at one time. Each time you buy will generate a commission charge and these can add up quickly.
Volume is a vital metric because it tells how liquid the stock is. Liquidity is a measure of how easily it is to sell your shares. If a stock isn't very liquid you could lose any profits simply trying to sell. I always look for an average daily volume of at least 1 million shares. This is ample volume to sell my shares without affecting the market. Selling to many shares at once can cause price to decline.
The P/E ratio is another good metric. It is a way of comparing stocks with each other. Not all stocks are the same, there are many factors to consider. The p/e ratio divides the stock price by its earnings per share, allowing us to compare stocks by value. Another important factor is dividends. Not all stocks pay dividends and not all traders are interested in them. However, dividends are a great way to increase account value while holding a stock. I like to get yields in the 3-5% range. Usually stocks yielding more than that are using the dividend to attract investment and don't have much reason to advance otherwise.
I also like to screen using sector and industry. OptionsXpress uses the rankings developed by Zacks market research. You can screen based on 17 sectors which are all broken down into dozens of smaller industry groups. This is especially helpful if you have identified an industry trend. Then you can use the screener to pick the choicest stocks in that industry. It is also very helpful for market allocation. You don't want to much exposure in any one sector or industry.
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After you pick your stock its time to wait for a buy signal. There are good times and bad times to buy a stock. After you see a few charts you will realize that price doesn't move up or down in a straight line. There are peaks and valleys in any trend. It is important to buy on dips and sell on peaks. Many traders use technical analysis to pick entry and exit points. This is a systematic and scientific method of measuring price movements on a chart. It can be used in conjunction with the fundamental analysis we've already done to pick good entries. You don't want to buy a stock only to watch it dip before moving up again. It's easy to see how the right entry can make you more profitable. The time you spend waiting for the buy signal is not to be wasted though. During this time you must read the news and study your stock, you don't want any surprises sending your stock to zero.
Using my analysis of the chart I pre set my orders. This is another advantage of using a high quality site like OptionsXpress. I can set my buy order for a limit of my calculated buy price. At the same time I can set a contingent order to trigger when the stock is purchased. By doing this I protect my account value by automatically setting a stop loss. I highly recommend using a stop loss order. When your stock price is plummeting it is easy to sit by and watch it, thinking to yourself it'll go up soon. On the same note, it is also good to set a limit order to sell when the stock reaches a certain point. Nothing goes up forever and an unexpected or unsatisfactory report can easily erase any gains you have made.
Updated on 11/13/2015.