6 Trading Tips for Beginners
When you start trading, you want a successful start to consistent profits.
The trading tips in this post are knowledge all beginners and experienced traders should have.
You will learn what trading is and why you want to trade, the basics about the financial system’s function, securities, foreign exchange, and stock exchange.
If you think it is complicated – you can always come back later and repeat it, practice makes perfect as they say.
What Is Trading
Trading is the practice of buying and selling securities. Day trading is the practice of entering and exit all your trades throughout the day when swing trading it can be from a few days to weeks.
As time progresses, prices will rise and fall in value, creating both the opportunity for profit and the possibility of loss. If you learn market timing and trade well, the trends and reversals in the markets allow for quick profits to be made.
Keep in mind, that trading securities regularly like swing and day trading are specifically designed to result in smaller earnings on a regular basis; it is not designed to result in huge profits through a single trade.
Trading can be very profitable, but it is not a get rich quick system, it is just like any other business: in order to be successful at it, you need to have proper education, trading rules, and a trading plan. And with the right tools and the knowledge on how to use those efficiently and effectively, you will find trading success and profit in the markets.
Trades that are generally closed on the same day is called day trading. Short term trading is attractive as it offers higher returns but at the same time is dangerous as well. With the advent of internet technology, day trading has become extremely popular among investors and market players.
Normally day trading involves buying or selling a security at the prevailing rate and which you feel will rise or fall towards the end of the day. As soon as the security value has reached your target, you close the trade making a profit for yourself.
Day trading requires patience to develop the skill, once you are used to it you will be able to pick up the best trades within a few minutes.
10 Reasons Why You Want To Trade
- Trading is one of the most rewarding ways to make money online – we cannot think of any profession as rewarding as trading.
- You are your own boss – you do not have to answer to anyone else and you decide when and why you do what you do.
- There are many different strategies you can use to become a great trader – there is not only one-way to make money on trading.
- It is your choice how many hours per week you need to trade – you can trade either part-time or full-time.
- You can trade from wherever and whenever you want – you are in control.
- You do not need a lot of money to get started – if you want to start trading forex, you can start with as little as $500-$1000 in your trading account.
- You do not have to deal with face-to-face contact and depend on others – your success is on you.
- Low transaction costs – think of how much the transaction cost is when you sell and buy houses; many real estate agents take 5 %, that is $5.000 on a one $100.000 deal. In trading, using a good broker with low transaction cost, you can pay less than $4 per transaction.
- You are instantaneous paid when you convert trades for cash – where else can you make money that fast?
- You can work in your nightwear – no need to dress up if you do not want to.
What To Trade
you will learn the basics of the financial system’s function, securities, foreign exchange and stock exchange. The information in this post is knowledge all traders should have. If you think it is complicated – you can always come back later and repeat it, practice makes perfect as they say.
The basic functions of the financial system are to:
- Provide a payment system.
- Convert savings to financing.
- Provide prices and manage risk.
The financial system channels savings into investments. This can be done by indirect channeling through intermediaries such as banks or direct channeling through financial contracts (securities) that can be bought and sold on an exchange, for example on a stock exchange or foreign exchange.
The three main categories of securities are debt (bonds), foreign (forex) and shares (stocks).
When you buy or sell a security you receive a certificate of your investment. Say you want to buy oil, buying a security on oil give you the pleasure of not having to arrange the delivery and storage of the oil barrels because securities are intangible investments. If you buy an actual oil barrel, you do not buy a security.
What Is Currency Trading, Stock Trading, And Commodities
An exchange is a (direct channeling) market where you can buy and sell securities. The foreign exchange market (also named forex, FX, or currency market) is a global decentralized market for the trading of currencies. The foreign exchange market is the largest market in the world in terms of volume.
The main participants are the larger banks and this is because they have to buy and sell securities to hedge their risk in their holdings.
Let us use stocks in Nasdaq (an American/Canadian stock exchange) as examples of securities in a stock exchange market.
What is a stock (share) you may ask? It is a certificate of ownership of the stocks company, a financing source for the company and capital investments for the shareholder. The more shares you own the greater part of the company you own. Companies sell shares because it is a way for the company to obtain funds for new investments so they can increase their financial performance.
Imagine yourself to start a taxi service. But you can only afford one car. By selling shares of your company, you can obtain funds to buy more cars. If there is a good faith on the company’s financial performance and expectation of future value the shares will have greater demand and the price will most likely increase.
Currencies o the foreign exchange market (forex), on the other hand, is driven by the expectation of the underlying currencies performances and expectations.
A commodity like corn is driven by the expectation of harvest and, therefore, connected to what weather the plants are exposed to.
The stock exchange, take Nasdaq is a marketplace that makes trading with stocks possible. You decide what price you want to sell or buy stocks. It is supply and demand that decides the bid and offer (buy and sell price) – just like when you sell your house or car.
If there is a large demand for houses in your area or car model your chances of getting the house or car sold is high if you offer it at a low price in relation to what other offers. If no buyer wants to buy your house or car you have to lower the price until someone is willing to buy.
The stock exchange market works in the same way. If you want to sell your stock at $10 but there are only buyers at $9 you will have to lower your sell price if no buyer is willing to pay $10. Say a stock is currently trading at $10,20. There are currently 8798 orders at $10,20 so if you would place your order at the bid at $10,20 all those 8798 orders have to be bought before your order will be executed since there is a trading queue. Let us say that, if you are willing to pay the offer price $10,30 there are 1220 shares available. So if you would like to buy 2000 shares, only 1220 would be filled.
6 Trading Tips On How To Start Trading For Beginners
Every day there are so many choices that there is bound to be confusion in your mind. You are investing money, obviously to make a profit and that can only happen when you choose the right stocks. It is therefore of prime importance that you learn how to recognize those stocks that will give you rich returns on your investment.
There is no specific list of stocks that will get you the highest gains and do not fall for anything or anyone who claims otherwise.
What you can do is cultivate certain habits that will help you recognize the stocks in a fairly lesser amount of time thereby helping you to make a profit on day trading stocks.
1. Get A Head Start
It is advisable to get your eye in early. The forex market is open 24/5 so find what time works best for you to trade. The stock market may start at a later time but a little effort will surely help in getting you ready when the market actually opens. There are a lot of financial news channels or websites that have discussions on which stocks would be the star on that particular day. So switch on your financial radar an hour or so prior and you would be all ready when the market opens.
An important note here, do not blindly follow stock tips, make your own analysis and plan on the stocks that on that day.
2. High Volumes
Trading only works out if you have substantial volumes. The higher volumes will ensure that you enter and exit quickly making a profit for yourself.
Large price moves in is currencies are the effect of volume. Normally the top stocks should feature on every financial website as the ones to watch out for. However, they might not always feature the stocks that are actually trading like hot cakes. In that case, you may have to go for sites that will feature a broader dimension, say top 35 or top 50 stocks.
3. Create Your Own Watch List
With daily time spent on the market, you will have certain currency or stock that dominate your watch list. Create a careful list of sectors that you want to focus on and select your stocks accordingly. The only thing here is that it will not be possible for you to select more than maybe 2-3 stocks from each sector as you have to manually monitor them to know which are the highest gainers and trade accordingly.
4. Trading Is Not Your Shortcut To Wealth
No matter what you have read on the internet or what stories your other trader pals have told you, you cannot become a millionaire overnight with trading. However, we are not completely discouraging you as there are many traders who have made their fortunes and many others who still are dependent on it as a means of livelihood. What you need to develop is trading acumen which will help you gain profits.
5. Risking More Than 1% Of Your Capital
The higher you risk, higher the gains, this strategy is not overtly applicable to trading. A successful trader will never risk more than 1% of his capital on a single trade. By adopting this method, you ensure that in the event of a loss the amount is not too significant.
6. Keeping Unrealistic Expectations
While starting your trading be fully aware of the market conditions and what you are getting into. Do not blindly foray into it just because somebody promised a windfall. Make sure that you have sufficient financial knowledge about trading, the terms that are used, what to look out for etc.
If you think you will have 5000 USD that will yield you 30000 USD then than it not going to happen. Take help from an expert who is trading to learn the finer nuances of the game.