Every year, millions of inexperienced individuals venture into the unpredictable world of trading, hoping to strike it rich. However, most of them emerge from the experience a little poorer but much wiser, as they never quite achieve their full potential. The common thread among those who fail is their lack of mastery over the fundamental skills necessary to tip the odds in their favour. Nevertheless, by dedicating sufficient time to acquiring these skills, it is possible to increase the likelihood of success.
The global markets attract speculative investors like moths to a flame, with many individuals investing their money in securities without truly comprehending the factors that drive prices up or down. Instead, they chase after hot tips, make binary bets, and blindly follow the advice of so-called experts, even when it makes no logical sense. A more effective approach is to learn how to trade the markets with expertise and confidence.
Begin by conducting a thorough self-examination, focusing on your relationship with money. Do you perceive life as a constant struggle, where each pound requires immense effort to earn? Do you believe that personal magnetism alone will attract financial success in the same way it does in other aspects of life? Perhaps you have consistently lost money in other endeavours and hope that the financial markets will treat you more favourably?
Regardless of your belief system, the market is likely to reinforce your internal perspective through both profits and losses. While hard work and charisma can contribute to financial success, those who have experienced repeated failures in other areas of life are often prone to similar setbacks in the world of trading. If this resonates with you, there is no need to panic. Instead, take a proactive approach by delving into self-help resources that explore the connection between money and self-worth.
Once you have gained clarity and a solid mindset, you can embark on your journey to learn about trading, starting with these five fundamental steps.
1. Opening a Trading Account
Although this step may seem obvious, it's worth mentioning, nonetheless. Make sure to find a reputable online stockbroker and open a dedicated stock brokerage account. Even if you already possess a personal account, it's beneficial to maintain a separate account specifically for trading purposes. Take the time to familiarize yourself with the account interface and make the most of the complimentary trading tools and research materials provided exclusively to clients. Several brokers also offer virtual trading options, allowing you to practice trading without risking actual funds. Trendsignal experts can assist you in finding the most suitable broker for your needs.
2. Reading all you can
Take advantage of the wealth of information available through various mediums, such as financial articles, stock market books, Trendsignal’s webinars and eBooks, and more. It's crucial not to narrow your focus solely on one aspect of the trading game. Instead, dedicate yourself to studying all aspects of the market, including ideas and concepts that may not seem immediately relevant. Trading sets you on a journey that often leads to destinations unforeseen at the starting point. Your broad and comprehensive understanding of the market will prove invaluable repeatedly, even if you believe you know your current direction with certainty.
Begin by dedicating some of your spare time to following the market daily. Rise early and read about the overnight price movements in foreign markets. The landscape has transformed due to the rapid growth of electronic trading and the interconnectedness of equity, forex, and stock markets worldwide.
3. The Art of Analysing
Dive into the fundamentals of technical analysis and immerse yourself in studying price charts across various time frames. While fundamental analysis may seem like a more promising approach as it tracks growth trends and revenue streams, traders rely heavily on price action, which often deviates significantly from underlying fundamentals. It's essential to continue reviewing company spreadsheets as they can provide a trading edge over those who overlook them. However, keep in mind that they alone won't ensure your survival in your first year as a trader.
Your exploration of charts and technical analysis will introduce you to the fascinating realm of price prediction. In theory, securities can only move higher or lower, presenting opportunities for long-side trades or short sales. However, prices can exhibit a wide range of behaviours, including extended periods of sideways consolidation or volatile whipsaws that shake out both buyers and sellers.
At this stage, the time horizon becomes critically important. Financial markets generate trends and trading ranges with fractal properties, resulting in independent price movements across short-term, intermediate-term, and long-term intervals. This means that a security or index can simultaneously exhibit a long-term uptrend, intermediate downtrend, and a short-term trading range. Rather than complicating predictions, most trading opportunities arise from the interactions between these different time intervals.
A classic example is buying the dip, where traders enter a strong uptrend when it experiences a temporary decline within a smaller time-period. To effectively analyse this three-dimensional playing field, examine each security across three-time frames: 60-minute, daily, and weekly charts. By doing so, you'll gain valuable insights into the dynamics of price movements and identify potential trading opportunities.
4. Engage in Practice Trading
Now is the time to dip your toes in the water without risking your actual trading capital. Enter the world of paper trading or virtual trading, which provides an ideal solution for beginners to track real-time market movements and make buying and selling decisions that form the foundation of a theoretical performance record. Paper trading often involves utilizing a stock market simulator that replicates the look and feel of an actual stock exchange. Execute numerous trades, experimenting with different holding periods and strategies, and carefully analyse the results to identify any evident flaws.
Many brokers even allow their clients to practice trading with their real money entry systems. This offers the added benefit of familiarizing yourself with the trading software, minimizing the risk of pressing the wrong buttons when you eventually transition to trading with real funds.
The question arises: When should you make the transition from paper trading to trading with real money? There is no definitive answer because simulated trading carries a flaw that is likely to manifest itself once you start trading with actual funds, even if your paper trading results appear flawless.
Traders must learn to coexist peacefully with the twin emotions of greed and fear. Paper trading fails to elicit these emotions, which can only be experienced when real profits and losses are at stake. In fact, this psychological aspect often causes more first-year traders to exit the market than poor decision-making. As a new trader, it is crucial to recognize and address this challenge, while also addressing any lingering issues surrounding money and self-worth. Take your initial steps forward with the understanding that navigating these psychological aspects is an integral part of your trading journey.
5. Continue Learning and Seek Mentorship
As you progress in your trading journey, remember that ongoing education is an asset. Explore various educational opportunities, whether they are online or in-person classes. These classes can cater to different skill levels, starting from beginner levels that provide guidance on analysing analytical charts, to more advanced levels for seasoned traders. Additionally, consider attending specialized seminars conducted by professional traders, as they can offer valuable insights into the overall market and specific investment strategies. These seminars often focus on a specific asset class, market aspect, or trading technique. Some may take an academic approach, while others provide interactive workshops where you actively participate, testing entry and exit strategies and engaging in exercises with the help of simulators.
In addition to formal education, it can be immensely beneficial to seek out a mentor—a seasoned trader who can act as a hands-on coach. A mentor can provide guidance, critique your trading techniques, and offer valuable advice based on their experience. Having a mentor by your side can significantly accelerate your learning process and enhance your trading skills.
Remember, the journey of learning and mentorship should be an ongoing process throughout your trading career. Stay open to new knowledge, continually refine your skills, and seek guidance from experienced individuals to further develop your trading expertise.