Over the years, stock market has offered investors and traders some compelling returns, but those rewards are certainly not without risks. While it is a great way to generate a passive and even an active source of income, it is advisable to dive into this world with adequate education and understanding.
Investors and traders who are just starting out trading can benefit significantly from keeping some basic things in mind. Here are some tips for any beginners that we at Golden Brokers have arranged for you to start the journey on the right foot.
1. Decide Your Trading Foundation
To start with, you should first understand the difference between an investor and a trader. The main difference between an investor and a trader is the duration for which the person holds the asset. Investors tend to have a longer-term time horizon, while traders tend to hold assets for shorter periods of time to capitalize on short-term trends.
You should clearly understand the difference between the two and know what you want to be. This is because trading strategies do not work for investors and investing strategies also will not work for traders. So, pick a side at the beginning as this will work as the foundation of your stock market journey.
2. Learns The Basic of Stock Market
There are many important aspects of the market. To excel in trading, you need to know and understand the market properly. Before starting your trading journey, educate yourselves on the markets, the trading techniques, the platform you’ll will be using, and the risk management tools available. Get the basic idea of several terms used in trading, such as what are the active trading times, what makes the financial market fluctuate, what different types of orders are there, as well as keep checking the news, economic calendar and try to determine the possible market movers.
The more you know about the market, the healthier your risk profile will be. Never jump right into the market with no real background knowledge on the markets.
Creating a trading plan is a critical component of successful trading. It should include your profit goals, risk tolerance level, methodology and evaluation criteria. Once you have a plan in place, make sure each trade you consider falls within your plan’s parameters.
In addition, manage on your analysis approach. i.e., fundamental, and technical analysis. Fundamental traders prefer to trade based on news and other financial and political data, while technical traders prefer the technical analysis tools such as using the moving averages, Fibonacci retracements, momentum, RSI, and other indictors to forecast market movements. While some traders also use a combination of the two. No matter what your style, it is important you use the tools at your disposal to find potential trading opportunities in moving markets.
One way to enter the world of investing without taking risk is to use a simulator. Using an online trading account with virtual dollars won’t put your real money at risk. You’ll also be able to evaluate and understand currency pairs, as well as determine how you would react if this really were your money that you gained or lost.
Put your trading plan to the test in real market conditions with a Golden Brokers Ltd. practice account at https://goldenbrokers.my/en/registration, to get a chance to see what it’s like to trade while taking your trading plan for a test drive without risking any of your own capital.
5. Manage and Mitigate Risks
Knowing how much you’re willing to risk on each trade, setting your leverage ratio in accordance with your needs, and never risking more than you can afford to lose is a simple yet critical to your future success. It is crucial to always keep one’s risk under control, both in terms of money management and position sizing. While taking losses is a part of trading, never risk too much on any single trade and always use stops. A stop-loss helps you reduce your losses as it lets you select a price at which your position will be automatically squared off.
6. Diversify Investments
As the saying “don't put all your eggs in one basket,” keeping your investments diverse will help you make up your losses in cases where one stock brings in losses. It is important to remember that some assets affect one another, so it is best to diversify between different asset classes (such as stock, commodities, indices etc.), and even within the asset class itself.
7. Be Patient and Disciplined
Trading consistently requires patience. Making sustained profits in trading takes time and effort, and there are no shortcuts to becoming a good trader. So, once you have your trading plan ready, have the patience to stick to your rules because patience is not about doing nothing, it’s about doing the right thing at the right time.
Another thing to keep in mind as a trader is to know your limits. Don’t trade when your strategy is not working. Know how much you are willing to trade with and stick to it. Trade according to your goals and implement strategies like stop and limit orders for profitable trades.
8. Stay Rational and Control Your Emotions
As a starter, you should not allow your emotions get the best of you while making trading decisions. Even if you happen to lose a few trades, ensure that you stick to your trading plan. Sometimes, even experienced professionals with advanced tools are not able to predict market movements. Never let emotions affect your investment decisions and potentially make choices that do not help you meet your objectives. “If you cannot control your emotions, you cannot control your money” - Warren Buffett.
Investing in the stock market can be very rewarding, especially if you avoid some of the pitfalls that most new investors experience when starting out. Beginners should find an investing plan that works for them and stick to it through the good times and bad.