Beginner traders often get the fundamentals wrong, which is perhaps the most obvious reason for their failings. If a trader is looking to get successful at trading, s/he must have a good grasp of the basics and be temperamentally sound. Let us take a look at a few tips that can get you started with trading.
Know the basic trading terms and terminology
Getting a fair knowledge of the language of speculation is as important as learning how to execute trades. The industry is sated with many unusual terms and acronyms that can often give a bit of a head spin. Beginners are liable to get confused when terms like ‘pips,’ ’shares,’ ‘stop-loss,’ long/short,’ bullish/bearish,’ etc. are thrown around.
It can all seem quite daunting at first but once you get to know the idea behind them, understanding them will be a cinch. Some of them are actually quite easy to understand and you can start using them yourself.
Study the market
The significance of studying the market cannot be overstated in the world of financial markets. Everything you do is dependent on market signals. As a beginner, it is your duty to understand the market, the different currency pairs, and the factors that impact them before you risk your money on trades. Simply put, understanding the market will not only teach you what you need to know but will also allow you to safeguard yourself from losses.
Practice using a demo account
Once you start learning and have an inkling of a trading plan, test it, and practice using a demo account. There are scores of brokers and platforms that allow users to practice on demo accounts with simulated market conditions. This way you won’t have to risk real capital to be able to get some experience of currency pair trading.
Understand why you’re getting into trading. If it’s to become an overnight millionaire, then you’re in for some reality check. All the stories about heroic trades only skim the surface of hard work and persistence that went into arriving at such a trade. Most traders have to work it like any other job. Of course, you will be rewarded for the time that you put in but don’t expect it to turn your fortune around, at least not right away.
Don’t be greedy
Greed is the number one cause of downfall and a trader’s worst nemesis. In itself, it can sometimes be a good thing to have. It’s true that we wouldn’t have accomplished much if there wasn’t some modicum of greed or incentive. But, it can backfire too and end up turning those profits into significant losses if it is left unchecked.
Those who give in to greed end up rising much more than what they can afford and there’s no surprise then that they end up with colossal losses. It may also manifest itself when you’re trying to hold on to a losing position for dear life in the hopes of a market reversal. Be aware of it and understand its role but don’t let it control your capital and decisions.
Control your emotions
This point ties in with the last point. Emotions and biases are not bad in themselves and they have a part to play. But, when they get in the way of your decision making, you are going to end up losing more often than not. Be it fear, greed, or hope – learn to manage your emotions and be aware of your tendency to give in to them.
It is better to stick to your plan and understand when to push on and when to call it quits. These decisions are to be worked out in advance and not left for later to be decided upon how one is ‘feeling.’
Be aware of your limits
Know your limits! This is another thing that is essential to your success in the future. It includes how much of your trading account balance you are willing to risk or can afford to lose. Set the leverage ratio according to your needs and limits; don’t risk anything that you’d be grumpy about for losing.
Consistency, not speed is the cornerstone of successful trading over the long term. Everyone in this business loses money and you have to stay patient and persistent in order to get a competitive advantage, which will, in turn, provide you a better opportunity of securing profits. It is good to do one’s homework, educate oneself, and then formulate a plan. But, the real trial by fire is whether or not you’re able to be disciplined and patient with it.
Explore and experiment
Though consistency is a necessary element, do look to evaluate and assess your trading plan from time to time, especially if things don’t work out as you expect them to. Experiment with things that you’ve never done before and you’ll gain new experiences that could have a positive effect on your decision making.
As your experiences change, so will your needs. And, your plans should be a reflection of your goals. With exploration and experimentation, if your financial situation and goals change, then your plan should too.
Finally, analyze and assess everything that you do. Keep a trading journal to jot down all your successful and, more importantly, unsuccessful trades as well. They will highlight any patterns that you may be stuck into that need some reworking. Furthermore, they will provide a nice timeline of how your education and the things that you’re experimenting with are influencing your decisions and financial situation.
Beginner traders are always looking for things that they should and shouldn’t be doing to get started in the world of trading. With the aforementioned tips, you should be able to delineate the basic idea of how you should approach trading and what you could expect from it in the long run.