Trading Basics

Submitted by Stock Market News on 11 May, 2011 - 12:29

Share trading basics for beginners

Share trading can be complicated when you go over all the details and information that you need to know. It can also be very overwhelming for a newbie who doesn't want to lose money and have an early retirement. But there are key basic concepts that can be very helpful for the beginner, that doesn't require you to interpret a whole bunch of charts or read through pages of company profiles.

  1. Save up. Of course to be able to make profitable gains you need to a capital. The key in building your capital is to earn more and spend less. The easiest way to do this (instead of coming up with lists that you need to cut back on but will be more tempted not to) is allocating a percentage of your income to save. If you're still a student, then you can save up more than 10% since you still don't have living expenses to keep up with.
  2. Separate Your Investment Fund. Once you have the money to invest, keep it separate with the account used for daily living expenses. This way you will able to keep track of your progress much more easily, get all the benefits of compounding, and won't be tempted to use it when you get a considerable return.
  3. Set your expectations. One of the most important components of a trading plan is setting your expectations. This will enable you to have clear direction and establish what your goal is, how to get there, and when. Instead of saying I want to be a millionaire and retire early, say I want to make (amount) by (date) before I'm (age).
  4. Study. This is pretty much common sense, but sometimes we forget the simple things once we get all excited by our own ideas and schemes. If you want to make consistent profits you have to stop treating trading as a gamble and more as a business. And like any business you have to know your product (financial instrument that you want to trade), who your competitors are, and identify market changes and know how to adapt to it.
  5. Trading Plan. Now that you know what you want and have established your goals, you have to think of how to get there. Trading plans are a dime a dozen, but the key in making it work is knowing what, how and why you are profitable. No matter what approach you use it won't really matter as long as you get achieve your targets.
  6. Execute. There are different factors that can give you reservations in putting your plan into action. In an uncertain market which can be influenced by world events, politics and economy it can pretty dangerous for a newbie. But the thing is, the market will always change, and the only thing that you can do is ride it. There are no perfect conditions just opportunities. You may also find yourself deviating from your plan when things don't go your way. All successful traders will tell you to stick to your guns. An unsure decision is the same with an uninformed one. A plan will not be profitable if you don't execute it well.
  7. Review. Keep a trading log and evaluate your progress. See if you are closer to your target. Identify what are the factors that made you hit that target. This is also a good way to examine your trading habits and see if you are making any improvements.
  8. Patience and tenacity. Dwelling on a losing streak will not get you anywhere. Recognise your mistakes, learn and move on. You can't be a millionaire in one year, unless you start with $10,000 or more. Rich people got to where they are by multiplying their capital, and getting bigger gains in the process. Its about making money work for you in the long run.

These are the basic components of trading, then you can add your own details. Stock market is a world where your performance is directly related to your profit, and there are no shortcuts to millions.

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