World markets are undeniably attracting the attention of the public more and more these days. Whether it is purely out of curiosity or in the hope of generating an extra income, financial markets certainly open many doors. Millions of inexperienced traders, unfortunately, have already tried their hand at the market casino and have lost. The reason for this is the lack of basic skills needed to trade in the first place. The better path is to learn and be knowledgeable before jumping into the market and putting all our savings at risk.
In this blog post, we will explore and discuss how trading stocks can be achieved in just 5 easy steps.
1. Build Some Background Knowledge
Before trading anything, it’s fundamental to know as much as possible about the functioning of markets and of trading. Spend some time researching and gathering information to acquire a strong general foundation on how to operate in the markets. Avoid choosing a specific asset or market segment right away. There is always time to narrow down the options and you will eventually find yourself choosing a specific path and focus. If your primary market interest will be, for example, stocks, you can dedicate time to in depth research in this area.
Consider enrolling in beginner’s trading course as a way to save time and jumpstart your trading career. Comprehensive courses will help you understand the markets as a whole and will save you the time you would spend on researching financial articles, reading stock market books or watching countless website tutorials all on your own.
2. Open an account
It might seem obvious at this point, but the next step would be to open an account. No matter how implicit this might seem, it is important to point out that the core challenge of this process will be to pick a good broker. You want to make sure that your provider is reliable and regulated. There are a number of supervisory authorities out there you can appeal to. Worth mentioning is the FCA, Financial Conduct Authority, if you reside in Europe.
After this tedious part is over, familiarize yourself with the account interface and the tools it offers. Take advantage of a free demo account, if offered, so you can practice with fictitious funds before putting real money at risk.
3. Start Researching Stocks
Now that you have been operating and are familiar with your trading account, it is indeed time to pick stocks. As you might imagine, this is where things get complicated. There are hundreds of thousands of stocks you could trade, so what is the best way to narrow down this list? The best advice we can give, is to take it slow. Focus on one or two stocks at a time and try not to get carried away. Choose an amount of money you would feel comfortable allocating towards these stocks and give it a try. Limit the number of allocated funds until you gain experience and trust in your stocks.
4. Manage the Risk Levels
Learning how to manage risks in ongoing operations is a key aspect for all successful traders. The truth is that when an operation is opened, there is always a chance that something unexpected happens in the market and that this might disrupt our operation.
Coming up with a detailed trading plan that includes an in-depth risk analysis is the best tool to withstand unexpected market changes. Ideal is to trade with a 1% risk or less (no more than 3%) of the total capital available and to always incorporate a stop loss in all our operations. This tool will allow for a smooth exit if the market starts acting against us.
5. Stick to your plan
Along with managing the risk levels entailed in all operations, it’s important to plan how much to trade at what price level, how long the operation should last, what the profit objectives are and how to account for plan changes. It’s crucial to write down these objectives before opening a position to avoid getting carried away by excitement or panic. Trading inevitably involves emotional responses, especially for those new to the game, so we need to plan accordingly to not get trapped by our feelings.
Start your trading journey with a deep foundation. Dedicate time to really understand how markets work before choosing your specialty area. Look for a broker that matches your needs the best and open an account. Use the free demo software to practice before putting real money at risk. Navigate the variety of stock out there and select a few you wish to pursue. Start by allocating small funds and focus on successfully managing your operations. Once you have gathered some experience, draft a trading plan for future operations and make sure to stick to it. These are the 5 easy steps to start trading stocks.