How to Begin Trading the Markets

There’s a lot of books and courses on strategies for trading, but few talk about the basics of moving from beginner to seasoned beginner. This article will introduce you to the 9 steps that will help you transition to the next stage.

 

Steps

  1. Choose what markets you want to trade (for instance, stocks, bonds, options, futures, forex). A big mistake of many beginners is to want to trade everything–fight that urge, focus. Don’t be a generalist, be a specialist.
  2. Choose what time-frame you want to trade. Day trading(enter/exit same day), swing trading(enter/exit 2-5 days) or position trading (enter/exit 5-20 days).
  3. If you trade hourly charts, take a look at the daily charts to get an idea of the more significant trend that is developing. If you trade daily graphs, look at the weekly graphs to get an idea of the more significant trend that is occurring. If you get a buy signal on the daily graph but the weekly graph is giving a sell signal, then the buy signal on the daily graph will not work.
  4. Watch the markets. Just by observing the news, financial reports you’ll be surprised at what you can learn.
  5. Keep a trading journal. Even before you start trading keep notes, ideas and observations in one place.
  6. Find or develop a trading strategy. You’ll need a game plan for making it in the markets, whether your own or someone else’s. The strategy should suit your trading style and temperament. You might start with widely-accepted principles of fundamental analysis and also read about technical analysis. Distill what seems most reasonable from a variety of sources.
  7. Trade without risk. Start practicing with practice accounts or paper trading. This will work out basic bugs, and help you understand trading basics. Try services[1][2] which let you practice with play money before trying out smaller trade amounts for real money
  8. Start small. After practicing, begin trading in very small increments. You should trade amounts that are negligible, for example in stocks, enter positions that represent a small percentage (<20%) of your total account. Be sure to only trade with what you are willing to lose. If you are using a margin account, leave some lest you receive a margin call.
  9. Scale your trading. Once you experience consistent success with small positions, instead of trading more instruments just increase the number of shares for each position.
  10. Manage risk. Insure you always have an order to exit an existing position in the event it moves against you suddenly.
  11. Know when not trade. It is not necessary to always have a trading position. Cash should be considered a position as well.
    Tips
  • Trading isn’t a sprint, it’s a marathon. Don’t try to make a killing right away, instead trade small and learn.
  • At the close of every trading session, record your trades, feeling and thoughts. Your trading journal is your best teacher.
  • Don’t trade because you’re bored. Sometimes not trading is the best trade.
  • At a minimum always know your profit and loss exit points.
  • Utilize technology to automate and simplify your trading activities.
  • If you decide to buy a diversified portfolio of 10 stocks (An idea promoted in most investment books), then you will need to hold onto the stocks that go up and sell the stocks that are trending down. I know that this sounds backwards to take a loss, but if you hold stocks that are trending down, the value of your portfolio will also trend down. A friend of mine sold 9 of his 10 stocks at a 30% gain and bought other stocks. Because he did not cut the losing stocks that were trending down, his portfolio dropped to half the value. This was because he ended up with 10 losing stocks that were all going down.
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This entry was posted on Thursday, September 8th, 2011 at 2:42 pm and is filed under Banking/Finance. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.