You’ve probably heard that stocks are very complicated, but in reality, they’re not. It’s just like anything else; it looks hard at first but once you get into it, it becomes easier in time. You just have to put in time and effort to actually get to that level of comfort. These are the steps you should take to become a confident and successful trader.
The first thing you need to do is properly educate yourself. A great way to learn is to read books and research the fundamental topics by going online to multiple resources like Investopedia and other websites to learn about these topics.
The second step is to open up a paper trading account, which is an account where you trade the real markets with fake money. The great thing about a paper trading account is that you get a feel of the markets without investing real money and avoiding the risks associated with real money. One of the most popular platforms is thinkorswim by TD Ameritrade. Thinkorswim starts you off with a $200,000 account. You should change this so your account is the same size as you plan to start off with in real money because there’s a huge difference in risk management strategies between starting with $200,000 and $3,000. So, take the $200,000 that thinkorswim gives you and change it to whatever you’re going to start off with just so you’re playing with the same numbers and you’re comparing apples to apples. You should start practicing with your paper account for at least one to two months so you can get comfortable with price movements, stocks, using the platform, seeing how the market moves, and how news affects the market.
The third step is to have a trading plan. In your trading plan, the first thing you should have is a solid risk management strategy along with solid entry and exit points for each and every single play you make.
The final step is to open up a real account. How much you open your account with is a personal decision. However, you should look for things like special promotions. A broker might give you free trades for 60 days or give you a margin account. If you have a margin account, you don’t have to wait three business days for your money to settle. The purpose at this point is for you to educate yourself with real money because when you’re trading on a paper trading account, it’s completely different than real money. When you have real money in the market, there’s more emotion involved. You may have heard that trading is 80% psychology and 20% technical indicators and skill sets. The only way you’re going to learn those psychological aspects, such as how you get emotional, greedy, or fearful is by using real money. When using a paper trading account, you’re not going to feel any of those emotions or really care about getting up in the morning to see if your stock is up or down because it’s not real money. With a real account, you are going to feel your wins and losses, and you’re going to get a better understanding of how much emotions actually affect your trading. This is why when you start out with real money, you shouldn’t start out with a lot of money. As you start with a smaller account you will notice that you can only trade a few times per week in order to meet the pdt rule guidelines, to learn how to ger around it, click here.
Once get passed this you will notice how you will be more profitable, then you can add more money. When you’re starting out, have the mindset and understanding that this is going to take time. This is not going to happen overnight. It’s a game of constant learning and improving.
Bonus Tip: How to Develop a Good Trading Plan?
As mentioned, one of the key steps that you need to make is to develop a good trading plan. We recommend you spend time as much as necessary until you cover all the important details of your journey. Counting on luck is something that people also do. However, believing your instinct will rarely bring the desired outcome. This especially counts if you are a complete newbie. Besides, if you want to test your luck, then gambling is an ideal alternative for you. However, we are sure you do not like that idea.
Anyway, every trading plan is specific and different. Its purpose is to bring some of the benefits that all trades need. Despite easier trading, you will ensure that all the decisions you make are fully objective. In many cases, people get emotional and make wrong mistakes in a hurry. Moreover, you will also ensure a better trading discipline that all professional traders have.
Now when we explained the benefits of the trading plan, let’s move to the main point. Your plan should possess a couple of things.
Write Down How Much Time You Will Spend on Trading
No one says that you have to spend the entire day on trading stocks. Some people would rather do that as a side hustle that can help them ensure financial stability. Generally, if you want to make a lot of trades daily, you will need to spend more time. ON the other hand, you also need to include in your trading plant the amount of time you will spend on education, analyzing the market, and other important duties.
Precisely Determine Your Goals
You have probably heard about SMART goals. This acronym only explains that your goals need to be specific, measurable, attainable, relevant, and time-bound. If you put into consideration all these factors, it will be a lot easier to determine which type of trading for you and how realistic your investments are.
Speaking of different types of trading, there are four of them that you should know. There is position trading where people hold their position and wait for months or even years. They hope that their stocks are going to be profitable on a long-term basis. If waiting for months or years seems too much, swing trading is a lot better option. If you decide on this type, you will hold your position for a couple of days or maximally weeks.
Finally, there are also day trading and scalping. As the name suggests, day trading is the type of trading where you open and close only a couple of trades during one day. ON the other hand, scalping is the type of trading where you buy and sell stocks for a couple of seconds or minutes in order to make a small profit.
As previously mentioned, do not expect to become a millionaire over the night. You will probably make a lot of mistakes until you get the necessary knowledge and experience. Always analyze the market and ensure that all your decisions are objective. Don’t make decisions in a hurry or when you are emotional because that will only lead to additional mistakes.