If you want to trade stocks and make money how can you make sure that you are doing it right? How can you Practice trading stocks before you put your own money into play? There are two ways to practice based on the timing of your trades. First let’s look at swing trading.
Swing Trading Practice
Investopedia explains swing trading.
Swing trading attempts to capture gains in a stock (or any financial instrument) within an overnight hold to several weeks. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders may utilize fundamental or intrinsic value of stocks in addition to analyzing the price trends and patterns.
Swing trades typically involve holding a position for days or weeks. Thus you can pick a trade to practice, enter the information on a spreadsheet and keep track of your results as you go. It will take a while to see your mistakes and correct your errors when you practice trading stocks this way simply because of the time frame that is longer than that of day trading.
Day Trading Practice
Day trading takes place within the trading day and positions are entered and exited within hours. While swing trading uses a combination of fundamental analysis and some technical analysis day trading is all technical analysis. There are several possible day trading strategies.
No matter what strategy you follow in day trading you will find that what you are doing is part tactics and part performance art. Traders read technical signals at a trade station and must respond promptly before the market opportunity to buy or sell changes. The way to practice trading stocks in this manner is via simulation trading. You can purchase simulation trading programs that contain real data from real markets. When you sit at the trade station you will see data feeds that would have occurred in the real world at some point in the past. You can trade, make or lose money and learn without using your own hard earned cash. You can also find simulation tools the work online. Investopedia discusses the stock simulator.
For novice investors, starting with a simulator is a great way to learn about investing. Simulators provide an opportunity to learn about basic investment concepts, such as how to read stock tables, the impact of market volatility, trading strategies and much more. News features provide insight into real-word events, such as corporate mergers, CEO resignations and the effect that upgrades or downgrades issued by Wall Street analysts have on stock prices. (To learn more about these factors, see Forces That Move Stock Prices.)
It also provides an opportunity to practice conducting research. Simulators generally offer a host of tools, including historical prices, performance charts, price-earnings ratios for specific securities, as well as historical trading data for various industries and indexes.
This later point is important. Although much of simulation trading is fast moving and a matter or reacting to market cues you need to decide what to trade and when. Learning how to conduct market research in order to more profitably target your efforts is essential to successful trading.
