Trading at the stock market is challenging. It can be rewarding but if you are new to the trade then you need to be cautious, as arbitrary trading can be dangerous. Most importantly you should form a strategy or plan your trading and follow that plan. Here are some key points you should consider before you jump into the immensely incredible world of online trading.
Do your research
Observe the market yourself and look for trends and patterns. You can consult the market predictions and forecasts but don’t act solely based on them. Often these predictions and forecasts are wrong. They can at best warn us of volatility ahead. Your reaction to that event is the most important factor.
No one predicted a global pandemic in 2020. No one also predicted that the markets will be relatively stable despite the pandemic. So, form your strategy and plan based on your vigilance and reaction and not on predictions and forecasts.
Start with a small step
If you are new in trading then start with one or two stocks. This will help you understand the processes and identify opportunities. Starting small doesn’t imply that you will look at low prices and cheap stocks, as often budget deals feature stocks that cannot be easily sold. A better way is to trade in fractional shares.
Use Charts
Charts provide a frame for you to understand and act on your current trading scenario. They will help you to understand what and when to buy and sell. They are the best tool to develop the discipline required to trade successfully over the long haul. Millions of charts are available online, but you need to select the ones helpful to you and use them properly.
Incremental trading is the key
Trading is not about buying one stock and sitting over it while hoping it will make you rich. In this situation, you are depending on the market forces, which are beyond your control. Instead of seeing trading as a single buy, you should look at it as a continuous process. It is wise to take a cautious step and watch how it performs. In this way, you can escape when the stock fails to perform.
If the stock performs well, then you can trade on it over multiple time frames. You can also consider it for day trading in multiples.
Be open to modifications
There is no superior approach to trading as how you approach the market is highly subjective. Some trade by following the trend, while some others may look at value play. What works best for you will depend upon your reading of the market. If you think your method is not producing the desired results then modify it. Remember you are working in a market that is changing continuously so your approach will change all the time.
Think long term
Think about playing for the long term. This means that you should minimize your losses and also profit. Look for avenues to compound your money. Buy-and-hold investing for the long term is one way of compounding your money. However, if you don’t want to hold on to a few stocks, you can also trade aggressively looking for the best performing stock. You can still compound your money by keeping your accounts near their highs.
Be realistic about the profits
There is s notion that stock market trading makes you rich easily if you manage to find those great magical stocks. In reality, trading is tough work and even successful traders suffer substantial losses. The trick is to minimize your losses and waiting through the bad patches.
Be patient
The market is cyclical and goes through highs and lows alternatively. New traders often cannot fathom this nature and commit mistakes in panic. The more effective trader patiently waits for the right opportunity and then acts quickly and decisively to seize upon it. This shift from a patient state of mind to an active one differentiates a successful trader from an ordinary one and is important if you want to play a long inning.
Final thoughts
Living under the shadow of a pandemic is tough. The situation can be tight for some time to come and you need to pull up your socks. Remember that trading is hard that is why it can make you rich.
