E-Book: "The Seven Steps to Start Online Trading Fast and Profit Quickly"

Welcome to Online Trading!

You are making a smart choice that can help you take charge of your financial future.  Online trading can be a fun and very rewarding way to make money from the convenience of your home, with most of the work being done in your spare time. The opportunity we have today to trade stocks online was not even available just a short while ago.  But now, with a computer and Internet connection, you are in control.

Consider that just 10 years ago, if you wanted to buy a stock, you had to call your broker. If you wanted to get information on a stock, you consulted the newspaper for yesterday’s news. The individual investor had to work through a broker (and pay their fees!) and it was nearly impossible to keep up with the speed of the news and the stock market itself.

Now, things are much better for the individual who wants to trade stocks themselves. Today, there are many choices of online trading services, complete with amazingly sophisticated tools for company research, stock price trend analysis and stock charting and tracking in real-time.

“Investing” is a very broad term that is used to describe everyone from famous investors like Warren Buffet to a new employee with a 401k plan.  You may not be sure where you fit in - or how you can use online trading to make some money. Well you do fit in - and yes, there is a great opportunity for you with online trading!

It may help to divide up the types of investors into different groups.  Think of online investors as falling into one of three types.  The most important differences between them are their goals and their investing time frames.

1) The first is the traditional investor.  This person is using investing as an alternative to putting their money in a savings account or buying CDs.  They are investing money for the long term, looking years out into the future with the intention of growing their principal slowly and safely.  This investor may buy and hold blue-chip stocks, other NYSE stocks or mutual funds.  Their goal is to make 10-20% on their money PER YEAR or a little better.

2) The second is a rather recent phenomenon – the day trader.   The day trader is working on an investing time horizon of hours, minutes or even seconds. Typically, they don’t hold stocks even overnight, let alone for years.  Unlike the traditional investor who is trading as an alternative to saving, the day-trader is investing as an alternative to holding a full-time job. Obviously, this method comes with huge risk of many different kinds.

3) The third type is the intermediate term investor, falling somewhere between the traditional and day-trader.  This person would have another source of income to pay the bills, but sees online trading as a way to generate short-term profits to supplement that income. To use a popular term with people who want to make money using the Internet, these traders want to generate a second “income stream”.  Their time horizon is weeks and months, holding a stock usually for days to weeks. 

This free report is for this third type of online investor and may include:
  - The Mom or Dad who is working full-time, but wants to use the Internet at night and on weekends to generate some extra money.
  - Young, working people in their 20’s and 30’s who want to aggressively trade in order to kick-start their earnings and give them more financial freedom.
  - The stay-at-home Mom or Dad who wants to use their time at home to make some extra money.
  - Experienced traders who want to take control of their portfolio and actively trade in order to maximize their return. For this group, trading online is treated more like an in-home business, where extra time is dedicated in order to make extra money.It is an alternative to taking a part-time job or starting a business from home.It is possible that it could become so profitable for you that it becomes a full-time job, but that is not the goal in the beginning.

This free report will provide you with essential guidance and tips you can use to start trading online and quickly generating a second income stream.  If you are an experienced online trader, it will serve as a check to ensure that you are using the right tools the right way.  You can use it to refine your strategy, refresh your toolbox or find new sources of information that can save the amount of time you need to dedicate each week in order to generate the profits you want to achieve.

And now, on to the good stuff!

1)  Pick the Right Online Broker for You  

You have a very important decision to make right at the start of your online trading career because the online broker you choose is very important to your overall success as a trader.  Thankfully, there are a several high-quality brokers out there for you to choose.  If you stick with a well-known broker, you should have all the tools and support you need as a beginner or intermediate investor.  You can always move your account from one to another with relative ease. 

You choice of an online broker will give you the equipment and tools that you are going to use to run your online trading business.  You must make smart decisions about these important tools in order to have a profitable business. 

As you settle into an investing style over time, you’ll begin to get a better idea of what is important to you.  If you are very active and place a lot of trades, you might look for the broker with the lowest trade costs.  If you use a lot of analysis and research to decide which stocks to trade, you might look for more sophisticated tools to help you monitor the market. It might simply be the formatting of the graphs on your online broker’s web site and whether you can quickly understand what you are looking at. 

The best advice is to trust your judgment.  If you sign up with one and find that you are not getting what you need, look at what other brokers have to offer.  It is not like you are married to them.

The big names for beginning to intermediate investors are E-Trade, TD Ameritrade, Scottrade, TradeKing and Zecco. More experienced investors tend to like Fidelity, Schwab and Vanguard. These brokers target investors with a large portfolio (like $50,000) who are doing more than just equity investing, but also move around large sums in mutual funds, managing their own retirement accounts and making other, large investments.  If you are interested in creating short-term profits by trading stocks or options, then choosing one of the five that I mentioned above would suit your needs very well.

There are many ways you can use to evaluate an online broker completely and this report can’t cover them all. Here are a few examples to get you thinking about what may be a good fit for you:

• Scottrade ranked highest in customer satisfaction in J.D. Powers and Associates 2007 ranking of brokers (and has for 7 of the last 8 years). That is good.  But they charge extra fees for trading stocks under $1.00 and pink sheet trades.  For many of us, that is bad.

• TradeKing was rated the #1 discount broker by SmartMoney magazine for both 2006 and 2007. Thery offer a flat rate pricing structure that is beneficial for beginning investors who plan to make smaller trades. 

• TD Ameritrade has a history of catering to day traders and offers a mind-boggling array of sophisticated market tracking tools.  They also offer a simple, flat-rate pricing plan that is good for beginning and intermediate investors.

• Zecco has advertised their “ZEro Cost COmmission” message all across the Internet with ads seemingly everywhere you look.  But as the table below points out, “zero cost” does not mean free in every instance.

• E-Trade is probably the best known of the group due to its advertising over several years and the fact that they are a solid performer across most every category.  They were named the Top Premium Broker by Smart Money magazine in August 2007.

On this site is a comparison chart showing some of the important decision criteria for the brokers discussed, as of the date of this writing. Beginners can use these as a starting point for making their decision.  And if you are an experienced trader who picked your online trading tool without much thought when you got started, now might be the right time to take another look at who you are using - and select the tool that is the perfect match for where you are as a trader today.

2)  Sign Up for a “Paper” Trading Account

If you are a beginner to online trading, you may be worried about putting your hard earned money at risk. This is certainly understandable and fortunately, there is a good solution available to minimize the risk of losing money in the beginning.

You can start your trading career with something called “paper trading”.  Paper (or “virtual”) trading is a trading simulation where you can buy or sell a stock using a real market price, but not actually investing any real money.  Many online brokers offer this service and you can have access to many of the same trading tools you have with your real account to track your virtual trades.

Using these tools, you can practice your trading strategies and gain some experience, but without the risk of losing money.

There are different ways to use this method, both of which allow you to gain experience without having to worry about taking a real loss.  Here is why you would do paper trading:

For the beginner, use a paper trading account to “learn the ropes”.  You can track your performance and make necessary changes over time.  When you develop a level of consistency where you are making good picks, entering and exiting at the right points, you can move on to the real thing with confidence.
An experienced investor can also use paper trading in addition to the real money investing they do.  They would use this as a testing ground to try out new strategies or try new types of investing. 

So as an example, let’s say that you are trading mostly penny stocks and other low-priced, small cap issues.  Because of their volatility (big swings in price on a percentage basis), you are only comfortable trading up to $500 at a time.  You are considering moving to stocks that trade in the $5.00 to $10.00 range, but don’t have experience in this area.  Use that paper trading account to explore stocks priced in that range with larger initial investments until you start to earn larger profits.

Another example is if you have developed good experience buying and selling stocks, but you have stuck to a basic strategy of buying and selling stocks. You would like to explore selling short and options, but don’t have any experience in those areas.  Again, use that paper trading account to explore the stock-picking process and the steps you take to execute those trades.

There is a possible downside with paper trading that you should be aware of.  It is real “touchy-feely”, but something you should be on the lookout for none-the-less.  It is this -- paper trading can never be the same as actual trading because you are not putting real money at risk. 

Without real money at risk, there is no true downside for you. And when you have no downside, you just naturally change how you make decisions.

For example, if you are not risking losing money, then you take out of the process the powerful emotions that take hold when your stock starts to go south.  On both the up-side and the down-side, with paper trading you will be tempted to take shortcuts.  So if you stocks starts going through the roof, you may be less likely to sell at your target price.  You will be tempted just to hold the stock longer to see where it tops out.

To get the most benefit out of your paper trading experience, you must duplicate how you will actually trade when you put real money on the line. Don’t take shortcuts.  Define your trading strategy beforehand, including your entry and exit points, and stick to them. If you do, then the time you spend on your paper trading can be just as beneficial from a learning perspective as the real thing, only without the risk. 

3)  Embrace Your “Ramp Up” Period

Chances are good that you want to start making money right now.  Maybe you need to start making money right now.  That’s OK, and you can start fast and make profits right from the start.  But more than likely, you won’t be quitting your day job next week.

 So keep in mind your overall goal, which should be to make a lot of money in the shortest time possible.  To make this happen, you need to build a solid foundation of trading knowledge and smart trading practices.  This will allow you to no only start making profits right away, but to grow your new income stream larger and larger over time. This means that early on in your trading career, you need to focus on learning everything you can and developing the skills you’ll need to make more money as you go. 

While it may be frustrating, you cannot ignore the fact that beginners start at the bottom of the learning curve. You will have a lot of learning to do.  But you will find that if you apply yourself, you will learn an incredible amount very quickly.  You will learn so much that in one month you will probably look back on your first trade and laugh at how dumb you were.

I remember my very first trade with my new online trading account.  I was chasing a breakout stock all the way up (which was my first mistake).  I put in a market order (second mistake) for 10 shares of a 50-cent stock (third mistake and counting).  That’s right, I was in for the whopping sum of 5 dollars. No kidding.  Even though I was using the free trades I received as a promotional offer from my online broker, the cost to place a trade was about $10.00.  And when it came time to sell, I had to pony up another $10.00. Now that would have to be one hot stock for it to just break even.  

So that was a pretty bad trade, but it was the worst trade I ever made.  And I did ramp up the learning curve fast by making more trades, analyzing the market every day, reading books and applying what I learned. 

You should dedicate yourself to your own education process.  Until you get some profits under your belt, it is the best investment you can possibly make.  Your education process should follow a path that looks like an upward climbing staircase. You take your education up a level, then take some time to apply and refine what you have learned.  Then take another step up and once again, apply what you learned.

The biggest mistake that you can make with your education is to take only two or three steps up that staircase, then become content and stay there.  What I mean by this is that if you take two or three steps up the staircase and apply what you have learned - you may start making a small profit.  And that may be so exciting that you just want to make more trades and make more small profits.  Making small profits is great, but making several small profits is not your end goal.

So remember your overall goal.  Keep climbing the stairs and advance your education consistently throughout the first six months of your trading career, even if you don’t feel like you need to learn anything more.

4)  Learn How to Apply Technical Analysis

There are a few methods of analysis that you can use to research and pick your stocks. The first is fundamental analysis, which is the more traditional form of analysis. It looks at company performance, industry news and economic trends to predict the future performance of a stock.

The second is technical analysis - and it is totally different.  Technical Analysis is the study of stock trends - and interpreting those trends to predict future movements of a stock price. It involves analyzing stock charts for opening price, closing price, the price range the stock traded in throughout the period and the trading volume.  You analyze these data points over a period of time and look for patterns that signal where the stock is going to move next.

From a distance, it may look like some kind of black magic.  I mean, it doesn’t make sense that simply reading how a stock went up and down in the past could tell you what is going to happen in the future?

Well, there is more to it than that. So to help with the explanation, let’s use a fictional example to make the point.

Do you remember Gordon Gekko from the 1980’s movie, Wallstreet?  He was a big player, right?  He was such a big investor that he alone had the buying power to drive up the price of a stock, or send it crashing down. 

Now let’s pretend, just for fun, that you could see all of Gordon Gekko’s investments in a particular stock.  You knew when he was buying shares of a particular stock, when he was selling and how many shares he was trading each time. More importantly, you knew when he changed from selling his shares in a stock to buying more shares and vice versa.

OK?  So, if you knew what Gordon was doing, then sometimes, you could predict when you should buy the stock and when you should sell. When Gordon changes his strategy from selling his shares in a stock to buying more shares, that would be a good time for you to buy the stock, right?  That is because there is a good chance that Gordon is going to drive the price of the stock up.

Basically, Technical Analysis is a way to read the buying and selling patterns of a stock, but not just the buying patterns of one person.  You are looking at the entire market for that stock.  And you can see by looking at the stock trends when the market as a whole is selling and when it is buying.  And you can interpret these activities to predict future stock movements just like we did with our Gordon Gekko example.

Technical analysis says that the best predictor of future stock price movements is the activity of the investors that make up the entire market.  This will be primarily driven by the large investors. If you look at when - and how much - large investors buy stock, sell it and hold it, you can sometimes predict what they are going to do next. I say “sometimes” because there must be clear indicators that the stock is going to move one way or the other - and these clear signs are not always present.  But they are there many times and when you find them using Technical Analysis – and you can act on them. 

For small cap stocks and penny stocks, technical analysis tends to be the language of the trade.  If you look at online forums for these kinds of stocks, you’ll see references to technical analysis terms. So if you want to follow why they are recommending a stock, then you must become familiar with technical analysis.

Technical Analysis is a big field of study. To begin your learning process, you should pick up an introductory book on the subject and start to become familiar with the more common patterns to look for.  The good news is that you don’t have to know everything to start using technical analysis. Learn about a few trends, then start looking for those when you analyze charts with your online trading tools.  Keep adding additional trends to your arsenal and before you know it you will be comfortable with the subject.

5)  Leverage the Experts

There is no shortage of tools and resources available to individual investors and self-taught traders out there.  If you are like me and are trading to supplement your income, then you still have a day job.  So your time is limited and it is precious.  You must constantly be on the look out for time-saving tools that will make you money.

Many of us who do online trading do it on a part-time basis.  Ideally, you want to find stocks that offer a big upside, we spend our time in the evenings and on weekends looking for that one stock that is going to double in price in a short period.

But it can be very difficult to keep up with all the data that is available to us through the 24-hour media and the Internet.  Add to that all of the data that we can access with our online trading accounts.  Finding hot stocks is a full-time job, and you may only have one hour per day or less.

So how can you make the best use of your time and still get the all the hot stock tips?  A smart thing to do is to make use of stock experts that are tackling this subject on a full-time basis. Here are 3 methods you can use that do not take a lot of time:

1.      Visit Trading Forums – Any subject that makes people money is going to have dozens of forums available.  Traders like you visit these sites to get insight and ask the experts their opinions. Beware though, because not everyone is as expert as they claim to be and some may have a hidden motive for recommending a stock.

To find these forums, just do a search on “online trading forums” or “stock investing forums”.

2.      Stock Picking Sites - There are also web sites where stock analysis and hot stock picks are discussed daily.  Two examples are Dr. PennyStock and StockEgg.  Usually, this kind of site will support a recommendation with analytical data or will give historical performance trends for past picks.  This gives you some independent way to evaluate the picks. 

To find these sites, search for “hot stocks” or “stock recommendations” and sort through the list. 

3.      Investor’s Business Daily - If you are a beginner to stock investing, you may never have heard of IBD. It is a daily newspaper, also available online, that is dedicated to stock investing and stock traders. It speaks the language of the short to medium term investor. You simply cannot beat it for delivering a steady supply of stock picking information on a daily basis. Pick up one issue from your local book store and you will likely find a week's worth of interesting stocks to follow up on.

Whatever source you use, try to understand the patterns that are described for a particular stock or the reasoning behind the stock pick. Doing this will accelerate the learning process of stock investing for beginners. Pretty soon, no doubt, you will be able to do most of your stock picking on your own.

Be sure to evaluate the credentials and the past performance of the expert.  If you find one that you like and trust, then you will be able to trade with some of the insight of a full-time, professional investor.

The most valuable thing you can invest is your time.  And you may not be in a position to invest too many hours looking for hot penny stocks.   Use these 3 methods to make the most of the time you do have to making a successful online trading business.

6)  Using a Stop-Loss Order

Using a Stop-Loss order is a good way to protect yourself from a big loss. At the time you place your buy order, you should place a Stop-Loss order to sell along with it.  Think of it as the online trader’s version of the buddy system.  You need to go into your stock purchase with a buddy in case something goes wrong.

A Stop-Loss is a sell order for the same amount of shares that you are buying.  You will place that order with a sale price that is lower than what you are buying the stock for. So if your dream stock starts dropping down to where you set your Stop-Loss order, it will automatically sell your entire position. 

For beginning online traders, it is important to use a Stop-Loss because usually you can’t watch the market at all times.  There is nothing worse than coming home from work, logging on to your online account and seeing that you have taken a huge loss. 

It is also important at times when you are watching the market.  If your stock starts dropping, panic sets in and now you are in a battle with your emotions.  “Should I sell now, or see what it does next?”  Or “I am sure this stock is going to rebound soon.”  If you set your Stop-Loss at the time you buy, you can make a more rational decision about where to set the sell price.

Just where to set the price on a Stop-Loss is subject to debate. Unfortunately, it all depends on the stock you are investing in and the trading situation.  Here are some guidelines for you so that you get the idea:

·         For penny stocks and other small caps that fluctuate a lot on a percentage basis, your Stop-Loss price will be lower (again, on a percentage basis) than with a $50.00 NYSE stock.  You are taking into consideration that a penny stock will naturally have a big up and down swing and that is O.K.  A NYSE stock should not. 

·         If you are doing a short-term trade where you only plan to hold the stock for minutes, your Stop-Loss will be just one point below where you bought it.  In this case, you might be jumping in on a stock as it is preparing to surge.  If the stock takes a downturn at this point, then that means you have mis-judged the market and need to exit quickly.

·         If you are doing an intermediate-term trade, where you might hold the stock for a period of weeks, then look for the “support price”.  Let’s say that you are looking at a stock that, over time, rises and falls between 50 cents on the low end and 75 cents on the high end.  50 cents is the support level.  As long as the stock price stays within that range, that is O.K. If the stock were to ever break through that support and fall below 50 cents, that is a very bad sign and the stock price will likely tumble.  In this case, set your stop-loss order just below the support price.  In this case, set your stop-loss at 49 7/8 cents.

There is one downside to a Stop-Loss where it can work against you. Sometimes a stock will make a dramatic and very short-lived drop in price, then pop back up to where it was before.  This can happen within an hour. In cases like these, the market-makers are “cleaning” out everyone who has a Stop-Loss order for that stock. This is an unfortunate case, but it does happen.  One way to minimize this potential damage is to continually increase your Stop-Loss sell price as your stock rises.  So if you are ever caught in this situation, you have limited the damage.

Even given this risk, the beginning trader is going to be better off maintaining a Stop-Loss than by not having one. 

7)  Understand the Importance of Trading Volume

We have covered a lot of ground so far.   By now, at least on paper, you have an online account, made some practice trades, you are continuing your education, etc.  

Now it is time for you to select stocks to invest in.  Doing this well will obviously determine the level of success you achieve in your online trading career. One of the most important factors for you to evaluate for when to buy stocks, when to sell and when to wait on the sidelines is trading volume.

Volume refers to the number of shares traded and it is generally used in terms of daily volume. Always evaluate the volume of shares traded per day of a stock!  Don’t just focus on price movements and forget about this important factor. The price can stay fairly flat over a period of time, but if the volume of shares traded is increasing, that is a sign that the big players are ready to make a move, one way or the other.

I know of a stock that was trading less than 1,000 shares per day on average early in 2008. It then got hot, very hot, and the volume started to climb - and so did the stock price. Just over two months later, the stock had increased over 400% and the trading volume was over 1 million shares per day!

In order for the stock price to be driven up, demand for that stock must go up as well.  The level of that demand shows up in the volume of shares traded per day.

Here is an important rule when you are looking at volumes. Stay clear of low volume stocks. One of the risk factors for Penny Stocks and other small caps is that they tend to be traded in lower volume.  It is not uncommon for an over-the-counter issue to trade less than 5,000 shares per day.  The problem with these low volume stocks is that it can prevent you from selling the stock when you want to (or really, really want to) because there are no buyers.  

You never want to be in a position where you want to sell, but no one wants to buy. When a thinly traded stock goes south and you are desperate to get out, you must be confident that there will be a buyer out there for you. As a conservative rule of thumb, set your limit at 100,000 shares traded per day.  That is, only trade penny stocks that have an average volume of 100,000 shares per day or more.  That way you can always be sure someone will take the stock off your hands quickly.

TAKING THE NEXT STEP FOR YOU!

Congratulations on completing this ebook!  Whether you are a beginning online trader or have months or years of experience, the information contained in it should be a useful guide in your online trading career. 

In it, you have learned:

1.  The importance of choosing your online brokers. It will supply the tools of your trade, so spend some time thinking about what is important to you at this stage and do some research on your choices.  Remember, you can always switch brokers if you find you are not getting what you need, so make sure you look up their cancellation fees beforehand.

2. A paper trading account can be very useful for getting real world practice trading online, without risking any of your money.  Do your best to “keep it real” by following the same decision-making practices you will when you are investing for real. And it can be used throughout your trading career to try out new investing strategies or begin trading a new kind of security.

3. For anyone who is not yet an expert in their subject, which is most of us, the ramp up period is difficult and frustrating.  Go into it with the expectation that you don’t know everything you will need and you will make mistakes. Look on the bright side; you are exploring new territory that has the potential to create a new income stream for you if you apply yourself. Enter your ramp up period with gusto, plan your education and enjoy the process.

4. Technical analysis is the language of penny stock and small cap investing and is a key part of just about any other kind of stock investing.  Learn the language, as it will allow you to apply its techniques and understand the points made by analysts and commentators for these stocks.

5. Unless you are a full-time trader, you have time-constraints that prevent you from fully dedicating yourself to your online trading.  To leverage your time, seek out and use stock experts who are full-time professionals willing to share their expertise with you.  This expertise often comes at a fee, but if they are good, you should consider this cost to be an investment in your own career.

6. A Stop-loss order is your buddy who you should take with you on any stock trade.  Minimizing your risk is critical because the stock market is unpredictable.  It takes just a little bit of time and can buy you peace of mind in your trading.

7. The volume of shares traded per day is a key indicator of what is going on with a stock.  It is often overlooked, though, as most tend to focus solely on price moves.  Understanding the implications of volume can give you an advantage in evaluating your stock picks.

Return to the home page to continue to compare online brokers.

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