LEARNING THE TRADING MARKET IN A FEW STEPS
Published on: 02/16/18 3:12 PM
Most novice traders walk away from their first gamble at the stock market casino with a little less money in their pocket.
Some will view this as abject failure and be too afraid to ever reach their full potential.
The wise, however, will come away like Thomas Edison, who realized that every attempt at inventing the lightbulb was merely a success in what not to do.
, though, novice traders need not make 10,000 attempts. Most novice traders simply lose because they haven’t first invested in learning the basic skills to ensure the odds are in their favor.
Speculative capital is largely based on deep pockets tossing money at securities based on tips and so called experts making their buy and sell decisions without ever understanding for themselves what makes prices move. Wouldn’t you rather knowingly control your money’s destiny yourself?
Step One: How Do You View Money?
Before you set off on the educational path as to the actual workings of the market, you first need to know yourself, in particular your mentality about your relationship with money. Perhaps, your mentality is that each dollar earned is equivalent to an equal measure of work. Maybe, your view is that wealth is attracted by your mindset and personal traits like magnetism. Or, you could see it all as mere luck and favoritism.
The point of the above is that the losses and gains you make in the market will inevitably reinforce your existing mindset about money. Have a negative mindset or one that contradicts the basics of trading, and you’re bound to fail before you ever begin. Get your mindset right before you even open an account.
Step Two: Open A Trading Account.
Find a reputable brokerage firm if you don’t already have one. If you already have a personal account somewhere, then be sure to open a separate professional brokerage account. Familiarize yourself with free online trading tools, the interface, and any research options available to you.
Step Three: Give Yourself A Crash Course On The Market.
There’s a tremendous amount of free to low-cost information from professionals and experts in the industry. Many of these sources write self-help books, how-to books, financial articles, stats and analysis reviews, and do online tutorials.
You may have a particular focus in mind, such as forex trading, but as you begin this journey, do not narrow or pigeonhole your research on any one particular aspect of the trading market. Don’t just study forex news or utilize research from a forex broker. Study everything, starting with the most basic concepts of all the market waters. This broad knowledge base will lay a strong foundation that you can build off of to eventually realize your end goal of becoming the best forex trader or whatever niche you fancy.
Make it a daily habit to routinely follow the market through a variety of trusted sources – TV, print, apps, and online sites. Make sure you monitor global markets as well because derivative instruments and electronic trading, which link world-wide forex, equity, and bond markets, are continuing to grow.
Step Four: Analysis Is Your Best Friend.
Familiarize yourself with the ins and outs of technical and fundamental analysis. Hardcore traders ride or die based on the price action diverging from fundamentals. So, dive into studying price charts from all time frames. Don’t forget about company spreadsheets, as well.
Price prediction is a skill that comes from the above. In theory
, you have securities going in only two directions – higher or lower, which encourages a long-side trade or a short sale. However, reality will show you that prices can chop sideways or whipsaw in ways that shake out sellers and buyers.
And, this is where the time horizon comes into play. Trends and trading ranges ground out by the markets generate independent long-term, short-term, or intermediate price movement intervals, meaning a security or index can simultaneously be in a short-term trading range, intermediate downtrend, and long-term uptrend. Crazy, right? Interactions between these time intervals will reveal trading opportunities, such as buying the dip by looking at each security at 60-minute, daily, and weekly time frame charts.
Step Five: Practice With Virtual Trading.
One way to dip your toes in the trading waters, without submerging your trading stake, is to start with virtual/paper trading. This method allows for a theoretical performance record as you follow real time action and make buying and selling decisions. Most use a stock market online simulator for the tracking and analysis of trades, holding periods, strategies and such for flaws. Some simulators even feature real money entry systems to familiarize you with software components before you start dealing in real funds. Nothing’s worse than having an “oops, I hit a thousand dollar wrong button” moment.
Step Six: Put Your Money Where Your Knowledge Is.
There’s not a magic flag to tell you when it’s time to move from virtual to reality. The fact is that simulators provide knowledge through practice, but they also can give you a false sense of security.
Successful traders work off two balances – fight and flight responses and greed and fear emotions. Because paper trading has the peace of mind of not being actual profits and loses with rewards and costs, the virtual trader can’t possibly undergo the psychological aspects of trading until the stakes are real. Be aware of the psychology and recognize any challenges you may have. Address the issues before you play with real funds.
Step Seven: Continue To Learn And Practice.
Consider attending academic educational classes, peer workshops, professional seminars, and paid subscription sites to evolve and expand your skill set. And, don’t forget to continue to read literature from a variety of sources.
A mentor is another portal of information and experience. If you don’t know an appropriate mentor, you can apply for a mentoring program through a college’s continuing ed program or employ a coach online.
You should also start a daily journal once you start trading with real money. Be sure to document
each of your trades, the risks, reason your taking the risk, holding periods, observations, and final results.
In closing, the bottom line is that you must take things in a logical, concise order.
Broadly educate yourself, familiarize yourself with the tools of the trade, test your knowledge with a low to no risk before applying it with risk, and then you continue to educate yourself in order to build strategies and make adjustments for success.