Buy Low, Sell High: A Beginner’s Guide to Understanding the Stock Market

Everyone knows that you can make plenty of extra cash playing the stock market. But, how?

In theory, the stock market can sound pretty simple. You pay for a portion of a company, and if they do well, you can sell your shares for a pretty profit.

For as straightforward as that sounds, investing in stocks can feel a little messier and more chaotic when you get into the thick of it.

If you’d like to dip your toes in the day-traders tidepool and take a crack at the stock market but aren’t sure where to begin, we can help.

Here is your ultimate beginner’s guide to understanding the stock market.

Buy Low Sell High

Odds are you’ve heard this expression somewhere before. “Buy low, sell high” is the golden rule of the stock market and has a simple meaning. Let’s break it down.

Say you bought a collectible at a garage sale for about five dollars. Then, a few weeks later, you find out that the collectible you bought is now worth a couple thousand. So, you sell the collectible and turn a pretty hefty profit.

That’s what “buy low sell high” means.

You buy stocks while a company is doing poorly when those stocks aren’t worth much, and sell them when they become successful.

Do Your Research

The key to finding success in the stock market is the ability to predict what companies are on the cusp of greatness. To successfully figure out who is about to rake in a lot of cash, you’ll need to do a little homework before you buy.

Depending on the stocks you’re interested in, you’ll need to look at market trends and any projects the company is getting ready to undertake.

You can’t see the future, so it’s not possible to know what’s going to happen with your stocks, but it never hurts to educate yourself and prepare ahead of time.

Timing is Everything

Knowing when to buy and sell stocks can make or break you when playing the stock market.

You want to buy when stocks are at their lowest and sell when they’ve peaked – but it can be hard to figure out when that is. You can’t know what tomorrow will hold, and you can only trust market predictions so much.

The best thing you can do is follow the stock market forecast and educate yourself on trends and natural fluctuations.

By keeping tabs on the Dow Jones today, you can help yourself anticipate what it’s going to do tomorrow.

Diversify That

You’ve heard the expression, “Don’t put all your eggs in one basket.” But, what does that saying mean?

Well, if you have all your eggs in the same place and you drop your basket, you’re going to have to go back to the grocery store. This example illustrates the importance of diversifying when it comes to stocks.

If all your investments are in the same market and that market tanks, you could lose everything. But, if you spread yourself out across several different markets, you can recover from inevitable market setbacks.

Understanding the Stock Market

The stock market has had its share of ups and downs, but it remains one of the best places to earn some extra money on the side. That said, to reap the benefits of the stock market, you have to know the rules of the game.

Understanding the stock market can seem hard, but it doesn’t have to be. And, with these tips, you can begin to build a highly lucrative stock portfolio.

Are you looking for more financial tips, tricks, and hacks? We’ve got you covered!

We have dozens of articles on everything from finding the right stocks to investing in cryptocurrency. Check them out today!

Melissa Thompson writes about a wide range of topics, revealing interesting things we didn’t know before. She is a freelance USA Today producer, and a Technorati contributor.