In trading for beginners we will cover what tips a new trader should be aware of when they take their first steps in trading. Some will come naturally, whilst others will require you to tame that tiger lurking within you to develop the experienced mindset of a successful trader!
Trading involves making fast decisions and executing a large number of trades for a relatively small profit each time. Ensuring you avoid beginner’s mistakes will help you maximise your chances of success!
Choosing your trading strategy comes down to what you want to trade, what you can afford and how comfortable you are trading that particular asset. Trading for beginners means understanding the strengths and weaknesses of your strategy! In trading for beginners, choosing a trading strategy and sticking to it is one of the first trading tips for any aspiring trader.
You can choose a variety of strategies from day trading, volatility/event trading, price action or investing over a long period (maybe a couple of weeks). Critically, starting a trade with one strategy in mind before switching to another mid trade is inviting trouble! Ensuring that your strategy fits you is important, someone who wants to sleep without worry at night should perhaps focus on trading markets which are closed overnight (equity markets for example) Whereas someone who is more comfortable with risk (and using stops) could be tempted by 24 hour markets such as FOREX.
Successful traders have to move fast, but they don’t have to think fast. Why? Because they’ve developed a trading strategy in advance, along with the discipline to stick to that strategy. It is important to follow your formula closely rather than try to chase profits. There’s a mantra among traders: “Plan your trades, then trade your plan.”
Once you have chosen a strategy, another trading tip is when to trade. Trading consistently is key. One way to do this is to trade during the same hours every day, usually at a time when there’s traditionally greater liquidity and volatility in the markets. For the stock market the optimal hours tend to be earlier in the day or just before close.
It is important to know the opening and closing times of your chosen market before you start to trade. For example, the FOREX market never closes but has optimum liquidity between 6am and 5pm (GMT), when both UK and US traders are active.
It is a sensible trading tip to keep an eye on information releases, as events and earnings announcements can cause price fluctuations throughout the day. Trading for beginners requires staying informed!
Ask any successful traders for a trading tip and they tell you – protect the capital in your account above all else!
Risk management is a crucial in preparing to trade by setting your limits and putting measures in place to prevent your worst-case scenario. Risk management tools such as stops and limits are an essential part of trading for beginners.
It is important to realise you are never clear of risk unless you are out of the market completely.
You will often hear it said that a successful trader cuts losing trades quickly but allows profitable trades to run. A trader could have fewer winning trades than losing trades and still grow the capital in the trading account – trading for beginners involves learning to take wins and losses! A trader doesn’t always need to be right, but needs to quickly acknowledge when they are wrong and take action. This ensures that they’re making more money on winning trades rather than they are losing on the ones that go wrong.
There is nothing wrong with making a mistake and taking a small loss, but staying wrong and realising a big loss is the best way to end a journey as a short-term trader.
When trading for beginners, it is advisable to focus on a maximum of one to two stocks or assets such as indices/FX/commodity. With just a few stocks, tracking and finding opportunities is easier. It allows you to start learning tricks of the trade which will help you spot more opportunities!
Another trading tip is to assess how much capital you’re willing to risk on each trade. Most successful day traders risk less than 1%–2% of their account per trade. If you have a $10,000 trading account and are willing to risk 1% of your capital on each trade, your maximum loss per trade is $100!
For any beginner staying cool under pressure is probably the most important trading tip for an aspiring trader. Implementing a trading plan and then panicking because it isn’t doing exactly what you though it would and making a rash decision often leads to increasing your losses and missing out on profits! Staying cool at times when the stock markets tests your nerves, will help you identify opportunities. Trading for beginners means learning to keep greed, hope and fear at bay. Decisions should be governed by logic and not emotion!
Trading can be a rewarding but also at times, a frustrating passion! Following the trading tips we have listed should increasing your success! Trading for beginners requires a little luck but also some hard work. It is important to realise that as an aspiring trader you will make mistakes, the effect of which some of these trading tips will hopefully mitigate!
Learning not to let these disappointments and critically your emotions get the better of you will help you overcome any failures and grow you into a successful trader who identifies a profitable trading strategy which works for you!
Now that you know some basic principles, the trading world is your Oyster!