A Beginner's Guide to the Stock Market

by Matthew R. Kratter

This is because every stock has a bid price and an offer (or "ask") price. The bid is the price at which someone is willing to buy the stock. The offer is the price at which someone is willing to sell the stock. Memorize this phrase right now: “You sell to the bid, and you buy from the ask.”

A liquid stock is defined as a stock where you can buy or sell a lot of shares without moving the stock too much. Liquid stocks in the U.S. usually have a bid-ask spread of just a penny or two.

That being said, there's a really easy way to pick stocks like Warren Buffett: Just copy him. Go here and download his letter for the most recent year: http://www.berkshirehathaway.com/letters/letters.html

You want to own businesses that have good pricing power. This means that they can raise prices without losing customers.

Until you become an advanced investor, don't ever buy a stock with a P/E of 10 or less.

One way to find them is to constantly scour the list of stocks at 52-week highs or new all-time highs, which you can find here: https://www.barchart.com/stocks/highs-lows/highs?timeFrame=1y

Growth stocks perform much better when the entire stock market is also in an uptrend. If the SPY and QQQ are trading above their 50-day moving averages, and if their 50-day moving averages are above their 200-day moving averages, it is a good sign that the general stock market is in an uptrend.

I also like to look for growth stocks, where the float is less than 20% of the total number of shares outstanding. The “float” is simply the number of shares of a stock that are actually available for trading.

Take profits when you are so excited and happy about your trade that you are losing sleep. Take profits if a stock moves up 100% in 2 weeks or less. Take profits when you are up 300% from your entry price.

Don’t buy stocks that are hitting 52-week lows. Don’t trade penny stocks. Don’t short stocks. Don’t trade on margin. Don’t trade other people’s ideas.

If you stick to stocks that are trading above their 200-day moving averages, or that are hitting 52-week highs, you will do much better than trying to catch falling knives.

Buy the strongest stocks that keep moving up. Add to your winners, get rid of your losers, and don't get too greedy.