When most people start off in the stock market they begin their journeys as long-term investors. However, there are those who just can’t wait for 10 years to reap the profits of their investments.
There are those who are looking for faster-paced moves and opportunities to make a decent gain in a shorter period of time.
They see other people do it online and think that making money in the markets is as simple as clicking a mouse, but that’s where they’re wrong. Making short-term profits, or trading, is much harder than it seems.
Some start dabbling in trading the Philippine stock market by just throwing their money at the hottest stock or from a tip they got from a friend which eventually leads them to experience losses.
Now don’t get us wrong; trading can be very rewarding if done the right way. With a proper understanding of markets and a strategy at hand, anyone who is willing to work hard and do their homework can make money by trading the Philippine stock market.
What is the Difference Between Trading and Investing?
Let’s answer the first question that pops into people’s minds about this topic, “What’s the difference between trading and investing in the first place?”
There are various differences between trading and investing in the Philippine stock market.
One of the key differences is the time horizon. Long-term investors can usually hold on to their investments for 5 to 10 years, some even longer! Shorter-term traders, on the other hand, can hold their investments for a day to even a few months.
A person’s risk appetite will also vary depending on whether they want to be a trader or investor. Traders will usually have a much more aggressive risk appetite, looking for high-risk – high-reward opportunities. While investors will usually have a much more conservative approach.
The number of transactions with their brokers will also vary. Some traders can make up to 10 trades in a single day, while there are investors that will only make two to three new investments a year.
Who is Eligible to Trade in the Philippine Stock Market?
The great thing about the stock market is it’s open to anyone who would like to enter. You don’t need a license or a diploma in order to start on your personal trading or investing journey.
Anyone who is at least 18 years old with the necessary requirements can open an account with any stock broker in the Philippines. And even if you’re still a minor, you can open a joint account with your parents or legal guardian.
Do I Need To Be In Front of a Screen All Day to Trade?
One of the common misconceptions people have about trading is they think they need to be in front of a screen the whole day. Now this is true in some cases especially if you’re a Day Trader or if you’re a full-time portfolio manager.
However, you don’t necessarily need to sit in front of your laptop all day to become a trader. In the first place, traders don’t buy and sell stocks every minute.
If you’re someone with a full-time job, simply checking every other hour to see how the market has been can already be considered trading. Even just looking at price charts near the market close and making your buy and sell decisions there can also be considered as trading.
The best thing about the environment we’re in today as traders are the fact that technology has advanced the way we can trade. Back then, it was close to impossible to be a part-time trader if you had a 9 to 5 job.
Nowadays, there are tools that are available on various platforms like TradingView and the Philippine Stock Exchange itself that can help make trading much easier for everyone.
Cool features like real-time alerts to let you know when a stock has hit your buy or sell price and stock screeners that help you find the best stocks in a click are now available to all of us.
Trading the Philippine Stock Market: A Step-By-Step Guide
1. Open a Trading Account
In order to start actively trading the Philippine stock market, the first thing you’ll need is an account with a stock brokerage. Choosing the right broker is very important, especially for active traders, it’s best to go with well-known brokers with a proven online platform.
Nowadays, opening a stock brokerage account is relatively easy given that everything can be done online. Here are a couple of brokers you should check out:
- AAA Equities
- First Metro Securities
- Col Financial
- BPI Trade
- RCBC Securities
- Phil Stocks
- BDO Nomura
2. Know the Basics of Technical Analysis and Fundamental Analysis
As someone who is looking to trade the Philippine stock market, you can’t simply start buying and selling based on hype for a specific stock on social media or tips from our friends.
In order to make money over the long run in this craft there are two very important concepts you need to understand: Technical Analysis and Fundamental Analysis.
Technical Analysis is the study of price and volume behavior to make better investment decisions. To put it simply, it’s all about looking at price charts while looking for specific patterns and using helpful tools to guide your stock trading.
If you’re someone who’s just looking at this for the first time a price chart may seem confusing, to some maybe even intimidating. However, to a trained eye and practitioner of Technical Analysis, a price chart can show you countless opportunities to make money.
Here are a few topics in Technical Analysis that you can read up further on:
- Support and Resistance
- Breakouts and Breakdowns
- Role Reversals
- Market Trends
- Trading Indicators
On the other hand, Fundamental Analysis focuses more on the inherent value of a company. When doing Fundamental Analysis we are primarily looking at the company’s financial statements to see if it’s either undervalued or growing rapidly.
When looking at the Fundamentals you can either focus on the companies that are currently undervalued, this means that they are priced under their true market value and show a good amount of upside.
The other option is to look for companies with growing earnings and sales as these stocks can potentially become really strong market leaders, especially during a bull market.
Here are a few topics in Fundamental Analysis that you can read up further on:
- Price to Earnings Ratio
- Price to Book Ratio
- Company Revenues
- Return on Equity
- Profit Margins
- Reading and Understanding Financial Statements
Which Approach is Better?
Once people start to get a grasp of Technical and Fundamental Analysis, they start to wonder which approach they should stick with. They make a decision between focusing on price charts or understanding the value or growth potential of a company.
The great thing about both approaches is you don’t necessarily have to choose one over the other, you can use both at the same time.
You don’t have to make it a 50/50 split too. If you eventually come to prefer looking at technicals over fundamentals then you can have a trading strategy that is 80% focused on the charts and 20% focused on the company’s financial statements and vice versa.
3. Read The Best Trading Books Available
One thing that has been repeated by some of the best traders around the world is that trading is a process of continuous learning. The moment you think you’ve made it as a trader or that you’ve learned everything there is to learn is the moment you may experience large losses.
The stock market is constantly moving and evolving and it’s our job as responsible stewards of our trading capital to make sure that we also constantly evolve and improve as traders.
We all have different forms of learning, some of us learn through video while others prefer purely audio or written word. Nevertheless, it’s still important that we take the time, even if you may not be a bookworm, to read timeless classics when it comes to trading the stock market.
The authors of these books have decades of experience and have compressed it down to a couple of hundred pages for all of us. Let’s take advantage of this wealth of wisdom and not take it for granted.
Here are a few must-read trading books for beginners:
- I Dare You to Trade by Traders Den PH
- How To Create A Trading Strategy: Stock Trading System Creation by Traders Den PH
- Trade Like A Stock Market Wizard by Mark Minervini
- How To Make Money In Stocks by William O’Neal
- Market Wizards (series) by Jack Schwager
- Trading In The Zone by Mark Douglas
4. Practice Through Virtual Trading
If you wanted to start trading the Philippine stock market back in the 90s you had to go at it with your hard-earned money. The thing is most traders make most of their mistakes when they’re just starting out, so these beginners usually take a considerable loss on their portfolios.
The great thing about starting your trading journey today versus 30 years ago is you don’t have to start with actual money. With the advancement in technology you can now actually do virtual trading before putting real money on the line.
By virtual trading, you’re experiencing the stock market firsthand in real-time, but without the actual risk of experiencing losses. There are several platforms that offer virtual trading for different markets like the US stock market, Cryptocurrency, and of course the Philippine stock market.
You can check out these platforms if you’d like to try out virtual trading:
- EToro (US stocks and Cryptocurrency)
- CoinMarketCap (Cryptocurrency)
- CoinGecko (Cryptocurrency)
It’s important to remember that virtual trading is only temporary. At most, you can do this for around six months, but after that, it’s finally time to really dip your toe in the water.
5. Start Real Trading with a Small Capital
Once you’ve got a feel for the markets through virtual trading, you can now start trading with real money on the line.
You don’t have to start with the full amount of your intended capital if it’s your first time to actively trade. You can start with around 30% to 50% of your full capital as you get a hold of actively trading with your own money.
Once you’ve gotten used to using your actual capital to trade the Philippine stock market, then you can use your intended full allocation.
Final Thoughts on Trading the Philippine Stock Market
Trading the Philippine stock market used to be an endeavor that was only available to full-time traders and professional fund managers.
However, thanks to technology, actively trading the Philippine stock market is now widely accessible to anyone.
As we’ve mentioned, trading is a great way to make money in the stock market and can be a much faster way compared to traditional long-term investing. However, it’s important to note that this won’t be an easy task.
People lose money in the stock market because they approach it without a proper trading system or strategy. They see the profits that other people make and think that making money through trading is as simple as staying in front of a screen and clicking a mouse.
The reality is trading is difficult, but if done the right way it can be very rewarding.
To learn how to be consistently profitable in the stock market, the first step is learning the ropes and finding a trading strategy that best suits you.
Traders Den PH has a suite of courses that tackle different trading strategies that can without a doubt help jumpstart your trading in the Philippine stock market.
If you really put in the time and effort to learn the correct strategies, read the best books, and always make yourself available to the market, you should end up profitable over the long run.