What to Know Before you Start Trading

What to Know Before you Start Trading

Trading can be a great way to add to your income. If you have an interest in the financial markets or business, and you are keen to get involved by trading shares and other financial products, there are numerous resources online to help you get started.

In fact, you might find the sheer range of information sources available a bit overwhelming! You can find everything from global trade analysis to reports on individual companies. There has never been a better time to get started as a trader. But if you are serious about trading as a source of income, then there are some things you should bear in mind that will help you to build your trading activity on firm foundations.

You can never have too much knowledge

The key to trading success is knowledge. It is the fuel that will keep your trading vehicle on the road. If you are going to make a success of trading, then you will need to know all there is about the mechanics of trading and the key economic factors that can affect the financial markets. That will mean staying up to date on all of the latest economic data and making sure that you are well-informed about the companies whose shares you are planning to trade.

Take a long-term view

Of course, the dream is to strike it rich and make a huge profit, but the reality, even for successful traders, is very different. The road to profit is through small wins, and that requires you to take the long-term view. You may not realize it, but even successful traders make a loss on up to half their trades. That isn’t a problem, because they make more money from their wins than they lose from their losses, but it requires a shift in thinking from aiming for short-term fortunes to preparing for long-term profit.

Make sure you have a plan

The image of trading that you may have picked up from Hollywood is one of fast-thinking, ruthless yet brilliant traders responding quickly to changing markets and thinking on their feet. The reality is somewhat different. In fact, as a trader, if you are depending on your ability to think on your feet, then you are likely to fail. Traders do have to move fast to take opportunities, but those opportunities are identified by spotting certain triggers, and the triggers are decided upon well in advance. Trading is all about planning. Entering the markets with nothing but a pot of money and a faith in your quick-thinking is a sure way to lose it all.

Control your risk with Limit Orders

There’s one more piece of practical advice that will be useful. When you’re trading, particularly early on in your career, you should avoid market orders and prefer what are known as limit orders. Limit Orders are only executed if the specified price is matched, and so enable you to trade precisely and to control your risk exposure.

Trading can be a lucrative activity and is a good way to boost your savings or just bring in a little extra income. But it should never be undertaken lightly. By following the advice outlined here, you will be going into trading with your eyes open, increasing your chances of success.

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