Thursday, 30 January 2014

Share trading: Getting the hang of the basics

Getting into share trading can be difficult. Well, getting into it is easy, especially with the abundance of online trading accounts out there. Getting it right however, can be tough.

Novice traders can find the whole process of deciding what to invest in, buying shares, selling shares, and knowing when to enter and exit the market somewhat daunting. And for good reason – it is daunting, and there is a lot to know.

Get informed

Before you start trading, it is highly recommended that you find out as much as you can about the market and the kind of trading you want to do. This may take a while, but getting a good grounding makes it much easier to succeed, and allows you to learn from your mistakes and the mistakes of others.

There are various investor starter guides available online, so check them out as a starting place. There are also dozens of websites dedicated to helping investors make decisions. Make sure the advice you take is credible, and use your common sense.

Create a trading plan

Whether you trade full time, after work or just as a hobby, it’s important to understand that trading is a business, and to treat it as such. That means making a trading plan. A trading plan is to trading, what a business plan is to business. You need one if you plan on being successful.

A trading plan allows you to set down goals and guidelines for trading. It allows you to identify your attitude to trading and to risk, and it sets out entry and exit strategies to follow. Having this all in writing makes keeping to your own rules much easier, preventing you from making impulsive decisions and trading mistakes – even when market conditions get hectic.

In order to create a trading plan, you should ask yourself the following questions:

Regarding your current situation
What kind of trader are you?
How much experience and what skills do you have?
How much capital do you have to trade with?

Regarding where you want to be
What do you want to achieve from trading?
What timeframe do you have?
What is success to you?

A trading plan can help you:

·         Identify and learn from your mistakes
·         Manage your risk better
·         Identify and keep to your entry and exit strategies
·         Stay focused on your trading strategy (if you have one) and keep faith in it
·         Evaluate the success of your trading, and make changes as needed.

Create a trading strategy

Some traders swear by strategy trading, some are not that bothered. As you become a more experienced trader, you may create a trading strategy. Read up on this process and how to test out your strategy to ensure you can rely on it.

Get some practice in

Once you know everything you need to know about the market and what you want to invest in, it’s time to get involved. Some online trading accounts allow you to do some paper trades (pretend trades) to get you started. Once you’re ready, start trading!

It can be a good idea to start out small and stick to large companies known for their stability – however, what you trade and how much you trade is completely up to you. If you are still unsure, you may want to seek the advice of a professional.

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