Trading is an aggressive and active way of trying to get profit in the financial markets. In comparison, the traditional buy-and-hold investing is a passive and a long-term strategic way of building wealth over an extended period of time through buying and holding of a portfolio of stocks, mutual funds, bonds, basket of stocks and other investment instruments. Both these methods seek to gain profits from market participation. For the new generation of profit seekers, an active lifestyle and on-the-go activities have influenced their mindset to seek profit in a regular, shorter time frame, taking smaller, and more frequent profits – something that can be achieved through trading.
When utilized properly and managed wisely, trading can have the potential to outperform buy-and-hold investing by getting profit during both rising and falling markets. For example, investors may be satisfied with annual returns of 10 percent to 15 percent; traders can achieve a 10 percent return each month by buying at a lower price and selling at a higher price within a short period of time. If the market falls, traders can still profit by selling at a higher price and buying to cover at a lower price. The prospects of this method of trading are attractive. So how does one get to learn the basics of trading?
Know the Principles Behind Trading
The first thing one has to keep in mind when it comes to trading is to treat it as a business, and not a hobby. By doing so, you will devote your time and effort into learning this business and developing it further until you find your own way of earning profit effectively. Also, you need to know about the trading styles: position, swing, day and scalp. Of these four trading styles, the most common style trading beginners go for being the day trading style. For beginners to know how to day trade, they have to be familiar with the principles of trading. Books are a rich source of information about stock trading and can be a cheap alternative learning resource compared to classes, seminars or webinars. All you need to find is a book that handles a topic that is right for you.
Seek Mentoring and Advice
It should be worth noting that successful traders today had good mentors or were able to get good trading advice during their early trading days. A good mentor doesn’t necessarily have to be a certified expert on the trading field. A family member, a relative, a friend, a co-worker, or a past or current professor is just a few people who could be mentors as long as they have a fundamental understanding of the stock market and the principles of trading. A good mentor is a good listener, is willing to answer questions, provides assistance, recommends useful tips or resources and gives encouragement when the going gets tough in trading. Sources of trading advice and tips are plenty in the internet. Forum and community sites about trading can be found by searching through the Web, but you should be careful who you listen to. The majority of community or forum participants are not professional traders, much less profitable traders. However, having an idea to start from is better than not having any idea at all.
Pick a Trading Market
Now that you have an idea on how trading works, it is time to put those ideas and learning into practice. Do not rush to go into an actual trade yet. You need to select a trading market. For day trading specifically, the most common are stocks, forex and futures market. Of these three, the forex market requires the least capital to day trade. The other two require more capital, especially stocks trade. These two also have a higher rate of profit that forex, but all these markets actually offer great profit potential. You just need to consider how much capital you need or you can muster to get started. Focus and specialize on the market that you have chosen to learn the best trading strategy for earning profit.
Start with a Demo or Virtual Account
A practice or demo account can help you formulate a strategy in trading while simulating actual trading conditions. Practice regularly over an extended period of time, preferably at least 3 months, in order to be familiar with the trade setups, the trade scenarios and to monitor the success rate of your trade strategy. If you have three months or more in a row of profitable performance using a specific strategy, it will be time for you to move to live trading.
Trading – Going Live
When you go to live trading after having many, successful trading performances during the demo trading, you may notice a deterioration in performance. Do not worry. This is only natural and you should stick with your strategy and make the necessary adjustments now that you getting the feel of the actual live market. The demo account environment cannot precisely mimic actual market trading conditions and you may have not anticipated the emotional burden of putting real money on the line. Nevertheless, continue on and start with the smallest position size when starting out with live trading. This will relieve some negative emotions of losing large amounts of money. Never lose focus on your practice sessions and the precise implementation of the strategies you formulated. Being focused also makes you adjust faster to living market trading while keeping in check the negative emotions that could be detrimental to your trading.
Now that you have an idea of the things to consider when entering the world of trading, it is up to you to pick up on the idea and improve it further if you want to start trading. Trading, especially day trading, can be fast-paced and will need your undivided time and attention. Nevertheless, with a proven successful strategy and the precise implementation of that strategy, the potential for profit can be limitless. Just like learning how to ride a bike, trading takes practice before you get the balance of things to move you through the road to profitable success.
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