Friends and family have a lot to say about trading. None of them are actually involved in trading or banking so basically I have learned to listen, grin and bear it. From the fact that traders are not ” working” as they are not ” producing” anything to the comments that we are actually vultures gaining easy money, I heard it all. But I believe that what is the most disturbing for many people is simply the fact that trading means you are openly showing that you are ineterested in one thing: making money. This is frowned upon in our society. Making money is a dirty job; you get approved if you start giving it generously or sharing it with – in this order: your friends ( nice meals and gifts), your family ( same as before but add the holidays and many loans that never get reimbursed) and finally charities of your choice ( choice that is always being criticized by your friends and family).
But the funny bit is that once you have been trading for a while and haven’t ended up in the streets, the same people as above start asking you for tips and advice about trading. That’s a trap of course, because as soon as you do they will contradict you; if they ever use the tips and make money, they assume they deserve all the credit and you only confirm their first opinion ( this means: if I were in your shoes I would be a millionnaire by now). If your tips fail, you never hear the end of it. So I don’t give tips. I have no opinion on the economy, the markets, my best friend’s grand mother’s shares future. I know nothing. I just trade. So now the aim of the questions have shifted; it is all about: where do you start?
Well, to start with, I’d suggest you have a plan. Even the best traders had more or less one before they started and not many people earned a fortune within days. ( When they do, it is usually called the lottery. And most winners had had lots of practice in that department too anyway). But before you start trading, you have to know why and how it is going to happen.
Why do you want to trade? this is an important question. Making money is definitely not the only answer. Because if it is, you have all sorts of ways to do this and they will probably be easier. It takes time to make money trading. Some people never get there. Some people do, but not as much as you’d imagine.
You have to know when you are going to trade. You may decide you are going to do the UK or the US market ( or the German, the French, the Italian, the Swiss….whatever)- which means playing the stock market. Or you want to do Forex ( the currencies change market). Or play the indices- which means you play the DOW, the FTSE, the DAX, the S & P 500, and so on. You very rarely do all of them at the same time. Do I have an advice on it? Not really. If you want to learn slowly but surely start with the stock market. It moves slower than Forex or indices. But it is not always easy . The stock market have different sectors; some may perform well because of some news or results, when the other don’t. It’s up to you to do your homework. Which leads us to the next point of your plan:
How are you going to trade? Are you going to trade during the day? After work? When you can ? All the time? .My advice : don’t ditch the day job yet. You may discover that trading is not for you. If really your fingers are burning, take a 2 weeks holiday and find out what your start looks like. If you trade the stock market you definitely have to do your homework. This means that you have to be aware of the news, the company you’re investing in or against ( if you think the company is going to be more worthy and the chart will go up, you buy or ” go long”. If you think that the price of the share is going to go down, you sell or “go short”). But you have to define when you will do all of this – and trust me, it is time consuming. As for the Forex and the indices, you have to be aware of any news that might shift the sentiment about them – and you have to know how these reacted in the past . If you have no clue, do not play.
How are you going to trade? I personnally spreadbet using my computer(s) at home. I have several brokers online- with my passwords, account numbers and other details stored in my head and ready to serve; I also have a sticker with my broker’s phone numbers on it – if my computer fails I do not want to be in trouble. Does it happen? All the time. So what tools are you going to use? Are you going to go to courses, to read books, to meet other traders, go to conferences, read magazines?. Are you going to spreadbet ( sorry for the US folks reading this, spreadbetting is not allowed in the US), do CFDs ( contracts for a difference) or buy/sell shares?. Who is going to be your broker?
You have to have a strategy. This means that you may use fundamentals ( very good if you intend to stay in a trade for several months or years), technicals ( most people use this when they want to stay in a trade anything from 2 seconds to severals years, but in my opinion indispensable to just understand the basics) or simply read the news and the company reports and act upon it. Some people mix all of these techniques. The secret is that there is no better way than another: you have to find out what works for you.
You have to know how much money you are going to use. My only advice is : do not use all the money you have. You want to be a trader, not a gambler. A trader is in for the long run. A gambler…well, gamblers end up in casinos where they have a better chance. Or not. You usually do not bet all of your capital on one go or two. This doesn’t give you the time to learn anything- and if you fail, you’re gone. The best way is to start small. Just use what you can afford to loose. Some people use 1% of their capital, some use up to 5 or 10. You have to know exactly how much you can afford to loose and stick to the rule.
Now you have to find out what your risk is. This means that if you play a trade that as as much chance of making you money than wasting it, you are not in safe territory. So it is up to you to determine what your chances are. Numerous books give you stategies to apply and how to calculate your risk/ reward ratio. You also have courses that teach you this. Don’t pay too much money for this kind of things.
You have to review your trades. You have to know why you got on a trade etc. You need to set up an entry price, an exit price, a stoploss price – and stick to it.
Now once you have all of this, I am going to go all Nikey on you: just do it.
Before you sign or buy anything, read all the prints, all the rules, everything. When you use a tool or a broker, explore all the possibilities they are offering you. Be thorough. Meet other traders and discuss and discover what your possibilities are. Some stories are spooky, exagerated, true, false. But it may raise questions and concerns that you’d be tempted to ignore – and this might be a big disadvantage once you are in trouble.
Store your info somewhere else than on your computer. If anythin happens to it, you are fucked. Trust me, it is the right word.
Now I wish you good luck.