Are you looking to get started in the stock market and hoping to make a little extra money for your family, your pension or just for your income? These beginner tips could help you in this effort.
Use Imbalanced Supply and Demand Scenarios as Your Entry Points
The financial markets are just like anything in our lives where when the supply is almost exhausted, but there are willing buyers, the price will go higher. On the other hand, if there is excess supply than needed by the willing buyers, the price will go down.
You will need to learn how you can quickly identify these turning points of a price chart. You can also do this by studying historical examples.
Set Price Targets Before You Trade
If you decide to buy an extended position, you will have to determine the maximum profit and a stop-loss level in case any trade turns against you. Remember always to stick by your decisions. This will help you control the trade and prevent potential losses and contribute to avoiding you from becoming too greedy when the price rises to an untenable level.
However, this rule can be broken when you are trading in an active market. In this case, you can set a new profit goal and stop-level after achieving your initial target.
When Setting your Targets, Insist on a Risk-Reward Ratio of at Least 3:1
One of the most important lessons for beginners in stock trading to learn is the proper risk-reward ratio.
You will be able to come out ahead even if you experience losses on many of your trades. As a matter of fact, you will be able to attain even risk reward ratios of as high as 5:1 after you gain some experience.
Successful traders usually don’t trade every day. This is what makes them successful since they only trade when they see opportunities that meet their criteria. Otherwise, if they find no trades that meet their set criteria, they will not trade.
This is a very good idea which is better than going against your own best judgments just because you are impatient of doing something for the day. What you need to do is to plan your trades before trading your plan.
Come up with a trading plan you will stick to. Once you are used to this process, the right decisions will become second nature. As an example, look at this chart here of the ANZ share price – it dips and troughs, so being disciplined is always going to be important with this share price as it is any share price.
Impulsive behaviour can become the worst trading enemy especially if you are trading alone. Greed can make you stay in a certain position for a very long period of time. Fear, on the other hand, can make you bail out too soon. However, you should never expect to get rich on a single trade.
Don’t Be Afraid to Push the Order Button
Beginner traders usually have what we call paralysis by analysis. They are very obsessed with watching the candles and Level 2 columns on the screen and cannot act fast enough when the opportunity presents itself.
Placing the order should be automatic if you are disciplined and also if you have your own plan. If you are wrong, your stops will get out without causing a major damage.
Only Day Trade with Money You Can Afford to Lose
Successful traders usually have a little bucket of risk capital and also a big money bucket they are saving for a long-term goal or for retirement. Money in the big bucket is usually invested in a more conservative money and in longer duration positions.
It is not forbidden to use this money occasionally for a day trade. However, the odds should be very high in your favor.