What does it mean to prepare yourself for long-term success as a trader? It means doing all those necessary tactics that come first before putting any money into a single transaction to get started. Unfortunately, far too many market enthusiasts don’t make the necessary time to get ready. It’s understandable that people become filled with enthusiasm and want to get into the exciting world of buying and selling securities of all kinds.
Human nature is a powerful force, but sometimes it can work against a person’s best interests. What’s the solution to this age-old dilemma? The answer lies in setting aside enough time to lay all the groundwork. All the below points are preliminary but super important steps. Those who do their due diligence and devote enough hours to preparation can reap substantial rewards later. Step one is about making an honest, fact-based assessment of your financial situation and asking the question how much money can you afford to place in a brokerage account?
After that, take an objective look at your skills, study the markets that interest you, screen prospective brokers, and use several free trials to evaluate platforms. Further, acquire an understanding of fundamental and technical analysis by reading articles, watching videos, and reading at least one of the classic books on those subjects. Round out your knowledge base by practicing on a simulator, checking relevant tax laws, and reviewing the mechanics of moving averages. After completing all those steps, it’s time to get busy trading. Use a commonsense schedule based on your current job responsibilities and other factors. Here are more details about the pieces of the preparation puzzle.
What to Do First
There are three tasks that are inextricably linked, and each one serves as a core component of long-term success. First, vetting prospective brokers can help people connect with reputable service providers. Second, newcomers should test platforms via free trials because there is a range of trading platforms that serve different purposes. Finally, it’s essential for future practitioners to know the markets in which they’ll be operating.
Contact broker representatives and ask questions about the asset classes they offer, minimum account balances, available online help during market sessions, and the downloadable platforms their customers can use. Most firms also have web-based platforms for users who specialize in forex, stocks, and other securities. Find out how long they’ve been in business. After satisfying yourself that you’ve lined up an excellent broker and the right platform, spend time studying the current state of the areas in which you’ll be doing business. Forex enthusiasts should educate themselves about details like position sizing, pips, popular currency pairs, etc.
Honestly Assess Capital Resources and Skills
Review your financial situation and determine how much capital you can devote to trading. It should not be rent money, or any other sums reserved for paying bills, daily living, or other essentials. Instead, identify an amount that you could afford to live without. That will be your initial account balance.
Don’t forget to take a skills inventory as well. Make a list of trading-related things you know well. Some have zero experience, which is okay and can be an exciting place from which to begin fresh. Others have a smattering of experience in buying and selling stocks or other instruments, perhaps many years ago. Others are relatively experienced in the field and have just taken a break of a year or two since their last activity in the markets.
Learn Fundamental Analysis
Fundamentals relate primarily to non-quantitative aspects of an institution. It’s quite common to evaluate the stability of a business based on the number of years it’s been in operation, the management team, recent news stories, and pending lawsuits. There are few specifics with fundamental studies, which is no surprise because the bulk of the data is qualitative in nature. Take a short course or read one of the classic books on the topic to gain a core understanding of how it works.
Learn Technical Analysis
Technical analysis is based on quantities. It involves the examination of price changes over time and the behavior of the asset in terms of appreciation, value, and number of shares or asset units sold. Some of the most popular technical indicators are moving averages and momentum studies. Don’t be overwhelmed by all the data. Instead, review technical indicators by visiting the educational section of some of the major brokerage websites.
Use a Simulator
Top brokers offer demo accounts in which you can wield the power of large fictitious sums via simulated trading. Simulators let users buy and sell with demo account money to learn how to place trades, enter positions, sell, set limit orders, and more. Consider spending at least one full week on the simulator before putting your real funds at risk in the marketplace.
Use Moving Averages
Moving averages are the most-used technical indicators of all, mostly because they are easy to understand and deliver real-time information. Keep in mind that moving averages are best for getting a feel for the current trend and not necessarily for screening individual trades. Most newcomers start by comparing the 200-day moving average line with the 50-day line. When daily prices break through either of those lines, it’s likely that a short-term rally is in effect. When the 50-day line crosses above the 200-day line, there’s an even greater chance that prices are in an upward pattern.
Make a Schedule
At this point in the preparatory process, a time schedule is probably the last thing on your mind. But keeping hours and knowing when to shut down for the day is a valuable skill. There’s no better way to limit fatigue and avoid the temptation to over trade. Those who buy and sell foreign currency pairs have to be careful because forex markets are open around the clock except for two weekend days. The goal during the first few months is not to enter as many positions as possible but to hone skills and get a feel for what works.
No matter what happens in the stock market, these eight rules will help you invest wisely. Learn where to put your money to create financial security even when the stock market drops by listening to this episode of the Money Girl podcast.