"How to Become an Ace Trader" is a question that all aspiring traders ask and more often than not, they are delude with so many answers that leaves them more confused than ever. Here is a list of check points that will help you reduce the clutter and focus on the fundamental points that you should ensure before you take your first real trade.
Education
"The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem."
Suze Orman
The key to success in everything else is no different in the Financial markets. There is no need to join any training academy and spend a fortune. Remember that no one can assure you profits. Instead, take a logical and systematic approach towards your education. Treat it like a course and space it out well so that you can absorb what you learn.
Market Basics
To be a good trader, you will need to know the basics of the Stock market, why it exists and how it functions. It may be surprising to find that the market is actually much more than what you initially thought and how it reflects the economy of your country.
Regulations
Every country and stock exchange will have well defined regulations regarding the purchase and sale of shares and derivatives in order to protect the interest of the investors as well as the listed companies. Try and find out what are the basic laws that govern trading activity in your country. In addition, it would also be beneficial to have some knowledge of the applicable taxes for financial transactions in the stock markets.
Charting
An indispensable tool for any trader is a price chart. You will need to learn what a chart means and how charts can visually depict so much about price movements. Take a look at some examples so that you have a clear idea of what a chart is and how varied it can be. More than being just an essential tool for any kind of analysis, a chart can open up a whole new world of tools for a serious analyst.
Analysis
Here is the key to what makes a trade win or lose. Analysis of stock involves the prediction of its prices for a specified span of time. There are numerous theories and strategies that have been developed over decades by stalwarts. A basic knowledge of these is a necessity towards developing any mature trading strategy. Primarily, there are two main schools of analysis - technical and findamental.
Risk Appetite
Trading stocks is risky. Period. There can no greater truth in the financial markets.
You will have to accept this fact before you proceed any further. Once accepted, you will have to understand how risky it could be. There are instruments in the financial market which can multiply your Money several times over, but at the same time can wipe you out as well. Hence you must be very sure about how much money you can afford to lose and this is the figure that will determine which instruments you can trade and in what sizes.
A simple way of evaluating this is to ask yourself "What is the amount of money which if lost today, will not alter my standard of living ?" And there is your answer.
That is the maximum amount of money that you should invest in the markets. As you proceed, you will also learn how to calculate how much money you should be risking per trade.
Time Frame
A stock can be bought today and sold after a decade. Another stock can be bought now and sold a few minutes later. How do you know when to sell ? It has to be decided before you enter the trade. Trading can make you greedy and greed can make you lose. So, it is important to define your limits beforehand.
Technically speaking, the following are the categories of traders classified on the basis of the duration of their trades :
Scalper - a few seconds
Day Trader - both legs of the trade executed on the same day
Swing Trader - a few days to a week
Short Term - a week to a few months
Medium Term - a few months to a few years
Long Term - a few years and above
Each of these have their own pros and cons and you will have to choose one based on your daily schedule and taste. More importantly, you will have to stick to it even when your trade goes wrong. It is then that your heart will tell you, "Hold it for some more time and you will see a profit." Hope - does not move the markets.
Instruments
Stocks, Bonds, Indices, Interest Rates, Futures, Options, ETFs and more. How to know which to choose ? Which would be the best option for you ? Before you decide on this, ask yourself a question. "Why am I investing in the stock markets ?" Your answer must contain your objectives and if it anything more than just for fun, it must be quantified. For how long do you want to remain invested, how much profits are you expecting and how much are you willing to invest. An ideal answer would look like this :
" I want to trade stocks because I believe that stocks hold the potential to give better returns than other financial instrument. I want to use this opportunity with xyz amount of money which I can risk without any compromise on the standard of living of my family. I am expecting a growth of __% on my capital every year for __ years." Define your expectations and stick to them.
Platform/Virtual Trades
Test your knowledge in a virtual environment before you actually risk your hard earned money. When you think you are prepared to jump in - hold it. There are plenty of brokers and websites offering virtual platforms for trading your strategies with virtual money. Take the ride and test how good you are. be patient and ensure that you are actually doing well.
Bookmark this post and use this guide as a framework for your preparation. There are tons of websites imparting valuable knowledge on each of these aspects.
We would love to hear from you. Please leave your comments below with any suggestions for your fellow readers or with any questions you have. We will be more than happy to be a part of your journey.
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