When considering how to start trading stocks, indices, foreign exchange or even precious metals and commodities, it is important to remember: trading is a journey.It is not just a question of how to start trading, but how to start trading in such a way that you can learn the most important lessons as safely as possible. There are a few basic but important concepts that you should understand to get you started on your trading journey with CFI.Millions of people try their hand at trading the financial markets every year. Some never master it and end up walking away poorer than they initially started out. Those who fall flat have one thing in common – they do not take the time to master the basic skills required to navigate and thrive in the global markets.So, what are the basic skills that you must master before investing your resources into the markets?
How to Start Trading: 8 Basic Considerations
Understand your personality in relation to money
The most important thing you need to know before you get started on your trading journey is – yourself. To set yourself up for success in trading, carry out an honest examination of yourself in relation to money. Do you fear losing money? Do you have a history of diligence and success in your other pursuits? Do you believe that you can make your fortune in the financial markets? Or have you lost money in other ventures and now believe that the financial markets will be kind to you?Examining and understanding your beliefs about money is important because traders are often forced to make fast decisions, and an internalised fear of losing money can cause hesitation, hesitation that can lead to losses or reduced profits. In contrast, untampered greed or a lack of discipline will often manifest itself in digressions from the trading plan
in the pursuit of larger and faster profits, and while there may be short-term gains made, this lack of discipline increasingly turns trading into something that can resemble a form of gambling rather than investing.
Know the kind of a trader you are
As you get started on your trading journey, it is vital that you know what kind of trader you are. Are you an investor, a day trader, a swing trader, a position trader
or a scalper
? Do you aim to make money after a few minutes, a few days, a week, a month, a year, or even longer?If you aim to make money from the financial markets in only a few minutes, you are a scalper. Take the time to learn about scalping and how it works.If you want to make money daily, then you are a day trader; if you aim to make money weekly or after a few days, then you are a swing trader – educate yourself about day trading
or swing trading.If you aim to make money monthly or yearly, then you are a positional trader, or an investor and you should educate yourself on the fundamental themes of the economy.
Choose a broker to trade with
Once you are comfortable with yourself and the kind of a trader you are, the next thing is to find an online trading broker and open a demo trading account or a live trading account. There are many Forex and CFD brokers out there, so to get a trustworthy online trading broker
, make sure that they are a member of a regulatory authority. Compare different brokers based on the type of trading platforms
they utilise, their transaction costs and other commissions, their order execution speed, and customer service.
Educate yourself about financial markets
Many people burn through their trading capital
by chasing after “hot tips” or relying on other people to generate buy or sell signals for them. They lack in-depth knowledge about what influences price action in the market.The primary concern with these strategies is that they leave your success and often failure in the hands of someone else. Someone who, if you have no knowledge of how markets work and what influences their fluctuations, you have little ability to critically assess the credentials of until it may be too late. A more responsible path would be to take things slowly and educate yourself about how to start trading and financial markets in general. The internet is awash with courses for different levels of trader, webinars, news, and articles just like the one you are reading right now. Ideally, begin with a structured course that covers the basics such as the webinar series we offer at CFI, because in the beginning, you are unlikely to know what you need to know. Once you have covered the basics, begin branching out and exposing yourself to new concepts. Open a demo trading account
so that you can observe theoretical principles and test different trading strategies in a risk-free environment and begin to identify those that feel comfortable to you.Study everything related to financial markets, even if you feel it is not directly linked to your trading game now. Having a broad and detailed background will come in handy again and again in your day-to-day trading decisions. This may be an investment of time, but ultimately it is an investment in your success.
Learn to analyse
Learn the basic considerations of both fundamental and technical analysis and how to apply them when you are assessing the current state of a market or value of a particular asset.Start with fundamental analysis and learn how different macro and micro economic factors influence as asset’s value. Macroeconomic factors including the state of a country’s economy or political climate or the industries that influence the value of the asset; and microeconomic factors such as a company’s management, developing opportunities and track-record for capitalisation.Once you have developed a strong understanding of the factors that influence an asset’s value, move to technical analysis to learn about how supply and demand of an asset leads to price action in the market.Carry out your own price predictions and see whether they come true. A demo account and trading journal can be valuable assets for collating data so that you can reflect on your performance and refine your technical analysis over time.You will need to analyse thousands of price charts through different time frames in your trading platform before you become proficient in these forms of analysis. It’s important to be able to more accurately predict what news will affect which prices and how these will have monetary value when it comes to counting your profits and losses.
Come up with a suitable trading plan
A trading plan is an outline of your trading goals and your strategy to achieve those goals given your personal circumstances, resources, and limitations.When crafting the foundations of your trading plan, it is important to consider factors such as:
- What do you want to achieve by trading on the financial markets?
- Are you trading for leisure, a supplementary income, or to generate your main source of income?
- How much money do you have available for trading?
- And, what are your short-term and long-term goals?
Your trading strategy should resonate with your personality and the kind of a trader you are. But it should also take into consideration logistical lifestyle factors such as:
- The time you have available to analyse price action on charts
- And, the times of the day you are available to physically be in front of the computer to take action by buying and selling financial assets
- Factor in your risk tolerance level and know how much you are willing to put into each trading position. Have a money and risk management strategy in your trading plan, so that you can make calm, rational decisions and keep your emotions under control.
Practice trading with a demo account
As we have already touched on briefly, there are several benefits to training in the risk-free environment of a demo account, and what is often referred to as virtual trading
or practice trading.Demo accounts utilise a financial market simulator with the look and feel of real financial markets, allowing you to test your trading strategy by following real-time market price action and making buying and selling decisions to augment a theoretical experience and a performance record before you begin trading with real money and real financial markets.
Keep a trading journal
Once you are up and running with real money, document your trading history. Write down the triggers that made you enter or exit each trade position, the amount you put in it, and the outcome.Documenting losses helps you identify your weaknesses and learn from your mistakes; documenting profits helps you identify your strengths and build on them to refine your trading strategy. Learning from the past is how we move forward in the trading journey!Now that you know the first steps, open your demo or live trading account and get started on your trading journey with CFI today.CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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