According to one of the authors of books on stock trading, traders can be divided into several groups – beginners, amateurs and professionals. The novice trader knows himself that he doesn’t know anything. An amateur trader sometimes naively considers himself to be experienced, misleads himself and others. He knows some ways to protect his account from serious losses, skillfully quotes the rules of stock trading and in time inserts quotes of professionals.
However, not all amateurs are like this: like professional traders, they can anticipate the market movements, recognize the emerging trend, buy an asset with minimal risk and sell it in time, when most of the movement is passed. Amateurs differ from professionals in that the latter are more patient, calm about the slight fluctuations of the market and do not doubt themselves and their system. However, any professional can for a time to slide into the amateur league, as well as an amateur – to break into the professional one. This is a dynamic process of self-improvement and struggle: this is how a person works. In this article, we will talk about what a novice trader needs to know in order to go this way with minimal difficulties, to protect his capital at all stages and to gain a foothold in the professional league.
1. Information
Always seek to draw knowledge and information from all available sources. The first step will be useful to know how other people came into trading, how their path developed, what mistakes they made, what trading methods they used and use, why some gave up. For example, you can learn about an American farmer who, without training and knowledge, taking over from all his relatives and acquaintances and investing all the money in the business, started selling options. After a week he not only lost all the money invested but also owed the broker a substantial amount. The five-year history of its revival and work on three farms should make 99% of those who read it not to get involved with unfamiliar and risky tools.
To avoid basic mistakes, the novice trader should read a lot of books about finances and investment. In any field, it is necessary to get additional knowledge, widen your horizon and simply learn more. Almost every successful investor was once a novice and they got additional information by reading other people’s experience.
After reading them, the newcomer will be able to freely operate such concepts as a stock index, futures, option, fundamental analysis, P/E ratio and so on.
At the moment when the financial news release will turn into a routine set of facts, and when reading the article, the novice trader will be able to make a reasonable comment to the author, it is time to move on to the next stage.
2. Licenses. Training. Brokerage account
Before opening a brokerage account, the novice trader needs to devote time to choosing a broker. It is necessary to evaluate it on several parameters, the key of which is the presence of a license of the Central Banks. If you are dealing with Forex brokers CySEC and FCA are always preferable. The company’s reliability rating, compiled by independent rating agencies, as well as the number of active client accounts and turnover on the stock exchange, is also important.
As in any new business, learning plays a paramount role. Thanks to modern technology, this process has become convenient and accessible. You can take both face-to-face and distance courses at a convenient time for you. In the process of training, you will learn how to work on the stock exchange terminal, learn about all the tools available for investment, their features, the advantages of some over others at different periods of the market cycle, get the basic knowledge about building your own trading system and/or approach. With the help of a demo account, you will be able to conduct test operations on the stock exchange, which will later give you confidence in independent work.
3. Real account – real trading
Having trained and mastered all the terminology and a variety of tools and investment approaches, you will surely face the main axiom of independent work on the stock exchange: the greater your age, the more conservative your approach to investments should be. With age, it is worth giving preference to such instruments as deposits, bonds, index mutual funds and some dividend stocks. These tools allow you to make your investment portfolio for several years in the future and only sometimes make changes to it.
A more interesting and profitable approach is speculative. However, the novice trader should understand that here he will face much greater challenges and a greater probability of error. Any speculative trading system can turn into a series of failed trades. The trader needs to develop a resilience to such periods, clearly control the risks and maintain a systematic approach. Using market instruments such as futures and options, you can significantly increase your capital, but you need to spend a lot of time tracking market quotes and choose the moment to make trading decisions. Practice shows that the combination of conservative and speculative approaches has the best chance of success in the long run.
Stock trading is an entrepreneurial activity, due to its versatility and variability available to anyone. The first steps of a novice trader will be to learn the basics and mechanisms of work. In the process of learning and becoming the trader can choose several ways of development. By combining and discarding the unnecessary, he will develop his unique approach based on the amount of time given, the amount of investment and the desired income.