As one of the most profitable ways to invest, the stock market offers enough work opportunities: it is both long-term and short-term investments. To make your trading on the stock market effective and bringing constant profits, you need to prepare well for it.
This article will cover the first steps a newbie trader should take while starting a trader`s career and how to learn to be a stock trader. Well, all you need to know before jumping with both feet in stock trading.
How to Trade
Prior to starting to learn how to stock trade, it is of paramount importance to have the right toolkit from the very beginning. At the end of the day, it makes no sense to visit some courses spending lots of time and energy on that, and then discover that it all has been pointless since you had no proper toolset. Of course, having started in the wrong way, none will be able to make the most out of the trading strategy, and there is no chance to benefit from stock trading without the right tools.
Here are the essential tools that must be included in your arsenal when you learn how to stock trade:
An individual cannot personally start trading stocks right away on the exchange. In order to get access to the trading arena, one needs a brokerage company. So, how to choose a Forex broker? It is necessary to consider several factors while looking for a reliable company:
Experience of work in the market. The best choice will be the company that has been working in the market for at least five years. Thoroughly study the information about it, because here you can also find Forex fraudsters claiming to be top and regulated.
Initial deposit requirements. Brokerage companies provide different opportunities for a trader when opening an account. Somewhere it takes 10 dollars and, in other cases, a few hundred dollars. The choice will depend on your ideas of how much you are going to start with. Some brokers have a $5000 minimum account activation threshold, so it won't be something you are looking for with $1000 prepared for trading.
The amount of commission or spread. It is logical that brokers, where the commission amount is lower, will be attractive. Do not for it since cheaper doesn't mean good. Consider all the aspects in total.
Getting to know a broker. There are different types of Forex brokers. Sometimes it is important to be meticulous, there is nothing wrong with that. If your choice falls on a certain broker, try to talk to the staff of the company, account managers, find out about the terms of withdrawal.
Make sure to take this aspect as seriously as possible since choosing a broker is the core of any trading. If the broker is not reliable, none of the rest will save the situation.
A Trading & Charting Platform
A lot of trading platforms - programs by means of which you will trade stocks - have been developed. The requirements for the trading platform can be summarized as follows: it is a program that will provide the trader with maximum necessary trading and analytical information, and will ensure quality reception and execution of orders.
The most famous and, in the opinion of most traders, the most convenient is MetaTrader. This platform is the best both for beginners and professionals.
MetaTrader 4 allows its users to perform technical analysis, monitor the market, recognize trading signals, and use Expert Advisors to avoid any market investment opportunities.
The user-friendly interface makes MT4 one of the best platforms for beginners.
MetaTrader 4 contains fully integrated and widely used indicators and oscillators that can be added to or removed from any price chart.
A wide variety of technical tools cover most trading strategies and are arranged alphabetically to simplify navigation.
The trading buttons are easy to use thanks to constant updates of Buy and Sell price quotes in real-time during market hours. Traders have full control over order placement.
Create a PaxForex demo account and test the trading platform right now!
How to Learn Trading
Similar to any other activity, trading requires you to get some basic knowledge since you cannot start reading without learning the ABCs. Of course, there is a lot of information that will bring nothing but a headache if you do not ration the data perceived. Googling online how to learn to be a stock trader, you will be offered to learn about the history of stock trading, the background of Dow theory, and much more of useless facts and figures. So, let us have a look at some crucial aspects you should consider before moving to how to learn stock trading section.
Which time frame will you trade?
Choosing a time frame for trading stocks is one of the problems that every trader faces at the initial stage.
In simple words, a time frame is the period of time of each candle or bar. For example, if you have a one-minute time frame (M1), then every candlestick on the chart will be equal to a 1-minute interval. If the time frame is daily (D1), then each candlestick will be equal to 1 calendar day.
In fact, by changing the time frame, a trader can analyze the dynamics of a financial instrument by grouping information by different intervals. The importance of such analysis lies in the need to predict price movements for different periods, depending on a particular trading strategy.
The choice of a time frame depends on many factors, and the main one is the trading strategy and personality of a trader. There is no trading time frame, which is universal and suitable for every market participant. That's why each beginner trader, depending on his own plans and psychological qualities, defines it himself.
However, not everything is as clear as it seems at first sight. It should be understood that when limiting your analysis to one or two time frames, a trader misses a lot of information for the analysis. After all, the chart behaves differently on different trading periods. For example, when performing analysis on a five-minute chart, you can find apparent bullish signals and open a long position for an asset. However, technical analysis of an hourly or half-hourly, and sometimes even higher time frame may indicate that it is close to the local price peak, followed by a pullback.
It happens that beginners begin to jump randomly from one-time frame to another, making hasty forecasts, which in most cases ends with losses and disappointment in trading. To avoid such situations, there are several recommendations, which will prompt a beginner to choose a timeframe for his purposes.
First, it is necessary to decide on the trading style, in which the trader plans to work in the future. Depending on the duration of the trades, it is necessary to determine the main range of working time frames.
Further, it is recommended to have on the screen in parallel several charts with different time frames. Then to observe the price dynamics and determine ( visually, at the level of sensations), with which time frame of the presented to the novice trader will be more comfortable to place orders, and what is the most productive in the forecasting. After that, it is worth working on the selected trading periods and evaluating their comfort for a particular strategy.
Which markets will you focus on?
Apart from stocks, online trading offers a wide range of other markets to take advantage of.
There are different classifications of markets, for traders the following is most acceptable - by type of instruments:
Currency market - Forex, provides exchange operations between national currencies;
The stock market:
Securities market - JSC shares, units of investment funds, provides an inflow of investments for issuers, corporate rights for investors in proportion to participation;
Derivatives market - market of derivative financial instruments (derivatives) - futures and options, used to hedge risks in commodity and stock markets and speculative operations;
Debt market - market of debt securities - bonds, treasury bills, provides long-term financing of issuers - corporations, the state.
The stock market is not the largest by trading volumes - the daily volume of the stock market on the ten largest exchanges in the world is over $5 trillion. However, it performs an equally important function - business financing.
The choice of the market depends on many aspects, including experience and the amount of investment. There are factors independent of it - this is the liquidity of markets and instruments, the number of available instruments, trading conditions - spread, trading platforms, the complexity of registration, and others.
Many traders believe that it is better to start trading with the stock market. The average trading volumes here are lower than in the currency or futures markets. By the number of assets, the stock market is a leader, so participants have the opportunity to choose based on individual mindset and preferences.
What tools will you use in deciding to place a buy or sell trade?
The basis for making money from reading stocks is understanding how the market works. A beginner trader should get some education and understand when he should open Buy and Sell orders. For this purpose the analysis of the situation is carried out and based on the received data trader makes conclusions about how the trend will behave in the future. There are two ways to predict the price direction:
Technical analysis includes a large number of methods, ranging from simple visual analysis of charts with a focus on different graphical models to the use of sophisticated computer analysis methods. Computer analysis includes a large number of different indicators based on statistical methods, wave and quantum analysis methods, fuzzy logic methods, and many other theories and methods. Indicators are used for visual analysis of changes in values in a chart. Some indicators are universal, others are designed for a specific trading instrument, and for a specific time frame. Therefore, the selection of indicators for market analysis should be done consciously. It should be noted that the behavior and nature of the market are subject to constant changes, and those methods of technical analysis, which successfully proved themselves a few years ago, today may be ineffective.
Fundamental analysis includes analysis of all fundamental macroeconomic indicators, monetary policy, political situation, social and natural phenomena, news, rumors, and expectations, both in individual countries and in the world arena in general, to study the possible impact of the above aspects on exchange rate movements. It is often quite difficult to interpret the incoming information unambiguously, in practice there may be situations when the same factors may have a different impact on the price fluctuations. A competent analysis requires appropriate knowledge and education, sources of timely news and information (news feeds), special software. All this makes this type of analysis the prerogative of large investment funds, banks, and analytical centers. Nevertheless, when you learn how to stock trade, especially when using high time frames, the use of fundamental analysis data is obligatory. For this purpose, it is possible to perform the analysis not independently, but competently use the data obtained from reputable analytical and information sources.
It should be noted that an objective analysis of the market should be based on a set of methods of fundamental and technical analysis of market indicators and the economic situation on the traded asset.
What risk management techniques will you use to exit your trade at a loss or in profit?
When trading stocks, you need to know at least about the basics of risk management, but it is better to understand it professionally because the main attribute of any order executed in the financial markets is a risk. Without competent, professional risk management in such markets, it is impossible to stay for a long time. Looking for how to learn to be a stock trader, you should know how to assess risks, balance, and reduce them. Only in this case, the capital will not only be saved but also multiplied.
Here are some risk management tips to follow to reduce losses:
You should not invest even in the most tempting project of more than half of all capital.
Invest no more than 10-15% of your total available funds in one position.
The norm of risk in a trade should not exceed 5% of the total amount of funds available to you.
Stop-Loss must be placed.
Determine profit margins.
How can you stay up to date with the latest market news?
It is not a secret that trading is all about information - a constant flow of news, rumors, and analytics` forecasts. That is why being on top of things is a must and one of the factors determining future success. There are several ways to do that, which are the best used in the complex:
Economic calendar. It gathers critical economic information and data from around the world that enables investors to make profitable trades placing Sell and Buy orders. The emergence of important economic news can have a sufficient impact on charts that are falling or rising accordingly, so it is essential to use the calendar and understand its structure for successful trading.
PaxForex Fundamental Analysis. This tool can be really helpful for everyone trying to know how to learn to trade stocks. It enables the trader to understand the root cause of the price movement and make a long-term forecast of the price movement.
Your Learn to Trade 4 Step Trading Plan
Now, once we have learned the basic tools needed to learn how to stock trade we can move to the plan itself.With its help you will have an idea of the steps you should take on your way to become a successful trader.
As we all know, starting from school, the best way to get some knowledge is with the help of reading. Given the perks of the Internet, you can start with some articles about the trading fundamentals. It will give you a general understanding of what trading is about and what aspects should be given special attention. It was the first option.
Another opportunity you can take advantage of is PaxForex Trading Course. This one provides all the basic information you should know in a systematized manner, leading you through, step by step. In such a way, you will not need to browse hundreds of websites looking for some understandable and easy-to-follow guides.
One more amazing solution is PaxForex Blog. It offers a wide range of different articles of all kinds - starting from the basic trading strategies to other fundamental phenomena as quantitative easing and its impact on the market.
Needless to say, a picture's worth a thousand words. So, one more fundamental aspect of learning stock trading is watching others trade. The best way to do it is to monitor some trading forums or social networks communities. There you can find a lot of traders discussing some assets and expressing their trading ideas. You can choose one author, for example, and check his previous forecasts comparing them to what actually happened. It will help you to grasp the other traders` logic and maybe find someone to follow.
Going through education courses and reading articles is great, but all that brand-new knowledge needs to gain ground through practice. And in trading, there is no better way to train than a demo account. It is super close to a live one, with the real-time quote, with the only distinction - you do not risk a penny from your pocket. The demo account enables you to test any trading strategy you might have, try different time frames, and all of that is in an absolutely risk-free environment.
You can create a real account any time you feel comfortable to start trading with your real funds.
The last but not least here is to live up to the challenge - you should never stop learning. The market is always changing, which means that what was working yesterday may give false signals tomorrow. So, make sure to keep improving your trading strategies, looking for some new indicators and, of course, keep up to date with the PaxForex Market Analytics section.
Trading on the stock market helps to significantly increase your capital, but it is wrong to think that it is easy to do. Without analysis of the financial market, without the right strategy, without knowledge of theory and practice, it is difficult to count on success. Before you enter the market field, carefully weigh your options, and make an informed decision. The market does not tolerate frivolity and a non-serious approach, and you just risk losing your funds and being disappointed in stock trading forever.