how to trade stocks and make money: Beginner's Guide

How to trade stocks and make money

This article explains in clear, practical terms how to trade stocks and make money for beginners and intermediate traders. In the first 100 words you’ll find a compact definition, an outline of differences between trading and investing, the key risks, and what you should be able to do after reading. Expect to learn market structure, trading styles, account and regulatory basics, order mechanics, research techniques, risk controls, common strategies, and how to use tools (including Bitget) to practice safely.

As of 2025-12-30, according to U.S. regulator reports and exchange summaries, the U.S. equities market remains the largest by market capitalization (exceeding $40 trillion) and daily trading volume on high-activity sessions commonly surpasses $100 billion. This background helps explain liquidity, participant behavior, and the infrastructure you’ll rely on when learning how to trade stocks and make money.

Quick note: this guide is educational and descriptive. It is not investment advice. Always verify tax or legal details for your jurisdiction and consult licensed professionals when necessary.

Background and market structure

Understanding market structure is foundational to knowing how to trade stocks and make money. The major U.S. exchanges include the New York Stock Exchange (NYSE) and NASDAQ; other regional and global exchanges operate similarly but with different listings and time zones.

Secondary markets are where existing shares change hands between investors. Primary issuance (IPOs) is separate. Key participants in secondary markets include retail investors, institutional investors (mutual funds, pension funds, hedge funds), market makers, electronic liquidity providers, and broker-dealers.

Trading hours for major U.S. equities typically run from 09:30 to 16:00 Eastern Time with pre-market and after-hours sessions that add liquidity but bring higher spreads and lower volumes.

Core microstructure concepts:

• Liquidity: how easily an order can be executed without moving the price. High liquidity reduces transaction cost and slippage.
• Bid-ask spread: the difference between the price buyers will pay (bid) and sellers will accept (ask). Smaller spreads lower costs for traders.
• Order matching and routing: exchanges and brokers route orders to trading venues or internalize them. Execution quality matters to final trade price.

Knowing these basics helps you choose trade times, order types, and position sizes when learning how to trade stocks and make money.

Decide your approach: trading vs investing and styles of trading

An early, important decision is whether you want to be a trader or an investor. Both seek profit, but the approach, time horizon, capital needs, and psychology differ.

• Investing: typically long-term, buy-and-hold, focuses on fundamentals and compounding returns.
• Trading: shorter-term actions (from intraday to a few months), often relies on technicals, active risk management, and faster decision cycles.

Common trading and investing styles:

• Day trading: open and close positions within the same trading day. High time commitment, active monitoring, and often requires larger account balances due to pattern day trader rules.
• Swing trading: hold positions for several days to weeks to capture trend or momentum moves. Medium time commitment and moderate capital requirements.
• Position trading: longer-term trading measured in months. Blends investing and trading — lower turnover than swing/day trading.
• Momentum trading: seek stocks showing strong directional moves, often using technical indicators and news catalysts.
• Value investing: look for undervalued companies relative to intrinsic worth.
• Growth investing: focus on companies expected to grow earnings or revenue faster than peers.
• Dividend investing: prioritize income and compounding via reliable payouts.

Choose the style that matches your available time, risk tolerance, capital, and temperament. This choice determines how you learn to trade stocks and make money effectively.

Time horizon and trader profiles

Time horizon maps directly to strategy choice:

• Intraday (minutes–hours): requires rapid decision-making, low tolerance for overnight risk, and good execution systems.
• Multi-day to weeks: allows use of technical setups and limited overnight exposure; suitable for swing traders.
• Months to years: favors fundamental analysis and position trading or investing.

Psychological and operational requirements:

• Intraday traders need discipline, fast execution, and emotional control.
• Swing traders must manage news risk and position sizing across several sessions.
• Long-term investors tolerate short-term volatility and focus on portfolio allocation.

Regulatory, tax, and account basics

Account types:

• Cash accounts: trades settle using existing cash; no borrowing.
• Margin accounts: allow borrowing to increase position size; interest and maintenance requirements apply.
• Retirement / tax-advantaged accounts: IRAs and similar vehicles provide tax benefits but often limit some trading activities.

Brokerage requirements and KYC:

Opening an account requires identity verification (KYC), proof of address, and other regulated checks. Brokers must follow anti-money-laundering and other compliance rules.

Tax considerations (general overview):

• Capital gains: short-term gains (positions held ≤12 months) are usually taxed at ordinary income rates; long-term gains typically have lower rates.
• Dividends: qualified and non-qualified dividends may be taxed at different rates.
• Wash-sale rules: disallow immediate tax-loss harvesting under certain repurchase conditions.

Pattern Day Trader (PDT) rule (U.S.): accounts marked as PDT must maintain a minimum equity (commonly $25,000) if executing four or more day trades in five business days.

Regulators and self-regulatory organizations: the U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) set rules and oversee broker-dealers and markets. Their guidance and enforcement actions shape trading behavior and protections.

Choosing a broker and trading platform

Selecting the right broker is essential when learning how to trade stocks and make money. Evaluate brokers by:

• Commissions and fees: account maintenance, per-trade fees, and margin rates.
• Platform UX: ease of placing orders, charting tools, and reliability.
• Order types and execution: support for limit, stop, complex orders; execution speed and quality matter.
• Research, news, and tools: screeners, analyst reports, backtesting, and alerts.
• Mobile access and API: for traders who need on-the-go or automated trading.
• Customer service and safety: SIPC or equivalent insurance, capital adequacy, and transparency.

Retail brokers provide easy onboarding and low fees; professional platforms add advanced execution, direct market access, and more robust APIs but may require higher balances. Use demo or paper trading accounts to test execution, tools, and workflows before committing capital.

Bitget note: for traders seeking integrated trading tools and Web3 wallet connectivity, Bitget provides brokerage-like interfaces and Bitget Wallet for wallet management. Evaluate Bitget’s features, execution quality, and regulatory disclosures before using live capital.

Opening, funding, and managing trading accounts

Steps to open and fund an account:

1. Choose account type (cash, margin, retirement) and broker.
2. Submit KYC documents and complete application.
3. Link bank account or use accepted funding methods; permit ACH, wire, or other transfers.
4. Start with an amount aligned with risk tolerance and strategy capital requirements.

Using margin:

• Understand initial and maintenance margin requirements.
• Beware of margin calls and forced liquidations.

Managing multiple accounts:

• Separate trading styles by account (e.g., day trading in a margin account, long-term holdings in a retirement account) to simplify record-keeping and tax treatment.

Record-keeping:

• Maintain trade logs, P&L records, and statements for taxes and performance review. Export trade data regularly and store copies of confirmations.

Order types and trade execution mechanics

Common order types you must master when learning how to trade stocks and make money:

• Market order: execute immediately at the best available price.
• Limit order: execute at a specified price or better.
• Stop order (market stop): becomes a market order once a stop price triggers.
• Stop-limit: becomes a limit order at the stop price, not guaranteed to fill.
• Trailing stop: stop price moves with favorable price action to lock in gains.
• Fill-or-kill (FOK): must be executed immediately in full or canceled.
• Good-til-Canceled (GTC) / Day: duration controls how long an order stays active.

Execution concepts:

• Slippage: the difference between expected execution price and realized price, especially relevant in volatile markets.
• Partial fills: large orders may be filled in parts across price levels.
• Routing and execution quality: brokers may route orders to specific venues; measure quality by speed and price improvement statistics.

Understanding these mechanics helps you reduce costs and ensure order behavior matches your trade plan.

Research and analysis methods

Successful traders use research to generate trade ideas and manage risk. Main approaches:

Fundamental analysis

Fundamental analysis evaluates company financials and economic context. Key items:

• Financial statements: income statement, balance sheet, cash flow.
• Earnings and revenue growth: consistent growth supports longer-term positions.
• Valuation ratios: price-to-earnings (P/E), price-to-book (P/B), EV/EBITDA help compare firms.
• Industry and macro context: cyclical exposure, interest rate sensitivity, regulation.
• Catalysts: earnings reports, product launches, M&A, regulatory decisions.

Fundamentals inform trade ideas for position traders and investors, and provide conviction for swing or longer-term trades.

Technical analysis

Technical analysis focuses on price, volume, and chart-based indicators to time entries and exits.

• Chart patterns: flags, head-and-shoulders, triangles.
• Trend analysis and support/resistance: identify levels where price tends to stall or reverse.
• Moving averages: SMA and EMA to see trend direction and crossovers.
• Oscillators: RSI (overbought/oversold), MACD (momentum and trend changes).
• Volume analysis: confirm moves and detect potential exhaustion.

Technicals are especially useful for timing shorter-term trades and managing risk with objective stops.

Quantitative and statistical approaches

Quant strategies use rules, data, and backtesting to exploit statistical edges.

• Rule-based systems: pre-defined entry/exit rules executed consistently.
• Factor models: screen by momentum, value, quality, volatility, etc.
• Backtesting: historical simulation to evaluate strategy behavior.
• Algorithmic trading: automation of strategies using APIs.

Quant approaches emphasize reproducibility and statistical validation before live deployment.

Common trading strategies to make money

Below are practical strategies with pros, cons, and required skills. Each can be combined with strict risk controls.

Buy-and-hold / dividend-growth investing

• Focus: long-term appreciation and dividends.
• Pros: low turnover, tax efficiency, compounding income.
• Cons: large capital tied up, vulnerable to long-term secular declines.
• Skills: fundamental analysis, portfolio construction, patience.

Value and growth stock selection

• Value: seek undervalued stocks trading below intrinsic value.
• Growth: target companies with above-average earnings or revenue growth.
• Pros/cons depend on market cycles — value can outperform in recoveries; growth may outperform during expansion.
• Skills: financial modeling, sector knowledge, and understanding of earnings drivers.

Momentum and trend-following

• Aim: capture sustained directional moves.
• Indicators: moving average crossovers, relative strength, breakout volume.
• Pros: can yield large short-term gains; clear rules for entries/exits.
• Cons: vulnerable to rapid reversals and whipsaw trades.
• Skills: technical analysis, risk execution, fast decision-making.

Swing trading and short-term setups

• Capture multi-day to multi-week moves using chart patterns and news catalysts.
• Pros: less intense than day trading, still frequent opportunities.
• Cons: overnight news risk; requires consistent setup identification.
• Skills: technical pattern recognition, event awareness.

Day trading and scalping

• Intraday capture of small price moves; high frequency of trades.
• Pros: no overnight risk, potential for many setups daily.
• Cons: high capital needs (PDT rule), intense psychological demands, high cost if execution is poor.
• Skills: lightning-fast execution, risk controls, and a robust platform.

Options and derivatives strategies

• Options: use calls, puts, and spreads for leverage, income, and hedging.
• Simple strategies: covered calls, cash-secured puts.
• Advanced spreads: verticals, iron condors, butterflies.
• Warnings: options have time decay and complex payoffs; require discipline.

Short selling and inverse exposures

• Short selling: borrow shares to sell first and buy back lower. Borrow costs and availability matter.
• Alternatives: buying puts or using inverse ETFs (where available).
• Risks: theoretically unlimited losses on shorts; short squeezes and borrow recalls.

Risk management and position sizing

Managing risk is the most important skill for traders learning how to trade stocks and make money.

Core principles:

• Determine position size using the amount you can risk per trade, not just desired exposure.
• Use stop-loss orders and predefined exit rules.
• Diversify across uncorrelated ideas while avoiding excessive over-diversification.
• Manage leverage and margin carefully; large leverage increases drawdown risk.
• Set maximum drawdown limits and overall portfolio risk caps.

Position-sizing methods and examples

• Fixed-dollar: risk a fixed dollar amount per trade (e.g., $500).
• Fixed-fraction / percent risk: risk a fixed percentage of equity per trade (e.g., 1% of account equity).
• Kelly or fraction-of-Kelly: mathematical approach to maximize long-term growth but can be volatile.
• Volatility-adjusted sizing: scale position size by asset volatility (smaller sizes for higher volatility).

Example (percent risk): with $50,000 account and 1% risk per trade, maximum risk per trade = $500. If your stop-loss is $2 below entry, position size = $500 / $2 = 250 shares.

Trade planning, execution, and journaling

A written trading plan increases consistency. A trade plan should include:

• Entry criteria and trigger.
• Stop-loss and exit targets.
• Position size and rationale.
• Time horizon and maximum holding period.

Execution discipline: follow your plan, avoid impulsive changes, and record deviations.

Trade journal: record every trade with entry, exit, size, P&L, and a short note on rationale and outcome. Review monthly to identify strengths and recurring mistakes.

Tools, data sources, and technology

Essential tools when learning how to trade stocks and make money:

• Charting platforms (e.g., broker charts, third-party charting services) for technical analysis.
• Screeners to filter stocks by fundamentals or technical factors.
• Real-time news feeds and market data for awareness of catalysts and volatility.
• SEC filings (EDGAR) for company disclosures.
• Backtesting platforms for validating rules.
• APIs for automating or monitoring strategies.

Bitget note: Bitget’s trading interface and Bitget Wallet can be explored for traders who value integrated platforms and wallet features. Always check regulatory status and available asset classes.

Backtesting, paper trading, and skill development

Start with simulated trading before committing real capital.

Best practices for backtesting and paper trading:

• Use realistic assumptions: include commissions, slippage, and market impact.
• Perform out-of-sample testing and walk-forward validation to avoid overfitting.
• Avoid lookahead bias by ensuring only data available at the time of a decision is used.
• Track paper performance with the same journal discipline as live trading.

Progression: begin with learning and rules validation in paper, move to small live sizes, scale up as the strategy proves robust in live conditions.

Costs, fees, and their impact on returns

Costs matter. They erode returns, especially for high-turnover strategies.

Key cost components:

• Commissions (many brokers now offer commission-free stock trading, but other fees may apply).
• Spread: wider spreads increase implicit costs for market orders.
• Slippage: common in volatile or illiquid stocks.
• Margin interest: cost of borrowed funds.
• Borrow fees for shorting: can be substantial for hard-to-borrow names.

To minimize costs: favor limit orders when appropriate, choose brokers with transparent execution, and reduce unnecessary turnover.

Behavioral finance and trading psychology

Psychology often determines long-term success. Common biases:

• Overconfidence: overestimating skill after a few winners.
• Loss aversion: avoiding small losses can lead to larger losses later.
• Recency bias: giving too much weight to recent outcomes.

Routines to maintain discipline:

• Follow a written plan and trade journal.
• Use automation for entries/exits where it reduces emotional decision-making.
• Maintain realistic expectations and manage stress with breaks and routines.

Performance measurement and scaling a strategy

Track these metrics:

• Win rate: percent of profitable trades.
• Reward-to-risk ratio: average gain vs average loss.
• Expectancy: (win rate × average win) − (loss rate × average loss).
• Sharpe ratio: return adjusted for volatility.
• Maximum drawdown: largest peak-to-trough loss.

Scaling rules:

• Increase size gradually as the edge and execution are proven.
• Avoid scaling during untested market regimes.
• Consider capacity limits — some strategies degrade as capital grows.

Common pitfalls and how to avoid them

Frequent mistakes:

• Overtrading: too many trades eroding returns via fees and mistakes.
• Poor risk control: oversized positions without clear stops.
• Chasing news or headlines without a plan.
• Ignoring fees and execution quality.

Mitigations: strict position sizing, pre-defined entry/exit rules, and regular journal reviews.

Advanced topics

A brief introduction to advanced areas:

• Algorithmic and high-frequency trading: requires low-latency infrastructure and professional venues.
• Institutional execution: block trades, algorithmic execution, and dark liquidity.
• Portfolio margin: advanced margin framework for large, diversified portfolios.
• Statistical arbitrage and pairs trading: exploit relative mispricings between correlated instruments.
• Multi-asset strategies: combining equities with options, futures, or bonds for diversification.

Legal, ethical, and compliance considerations

Important rules to follow:

• Insider trading laws: trading on material non-public information is illegal.
• Market manipulation: avoid coordinated activity meant to deceive markets.
• Record-keeping: maintain logs and records required by regulators and for tax purposes.

Retail traders should understand disclosures and broker terms, while professionals must adhere to stricter internal compliance.

Education, further reading, and resources

Reliable learning resources include broker education centers, established financial media, and classic books. Good starting topics are brokerage education pages, Investopedia, Bankrate, NerdWallet, and independent research providers. Consider structured courses for options or algorithmic trading and join focused communities for peer review and mentorship.

Glossary

• Bid-ask spread: difference between buyer and seller prices.
• Market order: an order executed immediately at available price.
• Limit order: an order executed at a specified price or better.
• Margin: borrowed funds to increase position size.
• Volatility: measure of price variability.
• ETF: exchange-traded fund, a pooled investment vehicle.
• Liquidity: ability to transact without large price impact.
• Stop-loss: an order to exit to limit losses.
• P/E ratio: price-to-earnings valuation metric.

References

This guide draws on established educational and industry sources and should be updated periodically. Sources commonly referenced for market structure, trading education, and regulatory guidance include broker education pages, Investopedia, Bankrate, NerdWallet, StockBrokers.com, The Motley Fool, and official SEC/FINRA materials. Check these primary sources for the latest rules and numbers.

As of 2025-12-30, according to SEC and exchange reports, the U.S. equities market capitalization exceeds $40 trillion and daily trading volume on active sessions commonly exceeds $100 billion.

Further exploration: test strategies in paper trading, review brokerage disclosures, and consider Bitget tools where you want integrated trading and wallet features.

Take action

If you want to practice how to trade stocks and make money without risking capital, start with a demo account and a structured trade journal. Explore Bitget’s demo and wallet tools to simulate orders, test execution, and learn order types in a controlled environment.

Thank you for reading. Continue learning, practice with discipline, and regularly review your trading results.