It has become extremely easy and affordable for any person with a few thousand dollars to invest and trade equities within the United States stock market but there is a lot of information to understand before one can make wise decisions. Before investing your hard earned money in specific stocks, you should have a clear understanding of what stock prices are based on, how to read financial sheets, and how to view and understand history and trends.

If you talk to anyone that actively trades or invests in the stock market the number one rule of thumb is to "do your homework". This is referring to the overall research on the stocks that you are interested in purchasing prior to doing so. This doesn't just include the past to current information but also what the company plans on doing in the near to long future to improve their business and grow. A stocks price is based on growth and even if the company is doing well right now it must have room and plans to show growth to maintain investors.

Each company that is publicly traded within the United States provides quarterly earnings that give investors an update of how they're business performed the previous quarter. Generally at this time, these companies provide guidance of where they expect to be financially for following quarters. Most stocks that are actively traded publicly have analysts from major banks that follow companies closely. These analysts typically provide their personal insight on the company's standings in comparison with the general industry which then provides their bank and following individuals the ability to have more information when choosing to invest. Throughout the year, analysts will upgrade or downgrade a stock based on how they expect it to perform in comparison to the market or sector as a whole. These evaluations as well as quarterly earnings reports can often cause big swings in a stock's price.

Once you have decided on a few stocks, the smartest way to invest in the stock market is to diversify a portfolio. An investor should choose about 5 stocks from separate market sectors. This is done because it is common to see entire sectors lose value in the same day. If you only hold one stock or stocks from one sector you are placing your investment at a greater risk. It is also known to build positions rather than purchase all at once. Purchasing a little at a time over a short period will help make sure your not purchasing before a dip in the stock price. To protect yourself financially, you should never invest money that you cannot afford to lose.