If you want to learn how to make money trading the Stock market, you will have to have an open mind and throw away all your preconceived ideas about trading and what it takes to be a profitable Stock Market Trader.
According to researcher 95% of traders of stock market fail to make money in the markets over the long-run, there are many reasons for this, but most of them boil down to having the wrong mindset when interacting with the market. It is the mindset of a trader that determines whether or not they make money in the market, and how much money they make. Most traders inhibit their own success because they do not know how to develop the proper trading mindset.
Anyone looking to try online trading should be fully aware that it requires time dedicated to planning and analysis, and also plenty of thought about costs and risks of losing money. Nearly all traders enter losing trades at one time or another, especially beginners. To make money, traders need to focus on avoiding losing trades and money, and then on maximizing their wins and overall earnings.
DECIDE ON A STRATEGY
There may be several strategies possible for making money in online trading, but traders should have a notion of which strategies they plan to implement before they begin. Much like knowing your route before you travel somewhere from your home, it’s helpful for you to choose a route to reach your trading destination before you begin buying and selling securities or other assets.
· Are you going to use a fundamental strategy, analyzing economic indicators and news that will support your ideas about a price move?
· Or will you rely purely on technical analysis to get a notion of trends in market movements?
If you choose technical analysis, it’s important to know which analytical tools to use and how they work. Another consideration is whether you will be trading intraday or long-term, and also if you will be following trends or trading on swings within a range.
There are online trading platforms for several different markets and asset classes, including equities, options, futures, commodities and foreign exchange. Regardless of which market, beginning traders may want to start with only one or a small number of assets to avoid becoming overwhelmed.
HOW MUCH RISK?
One of the key aspects of making money when trading online is discipline, which is especially important when deciding how much money to put into trading.
One popular rule of thumb for traders is to limit their risk on trades at any given time to no more than 5% of their total account balance. Thus, if a trader has an account balance of Rs100000 they will want to hold their risk to no more than Rs5000.
The reason for this practice is that even if a trader enters one losing trade, or several losing trades, during a given session, they will still have funding left over in their account in subsequent sessions to make up for the loss and potentially turn a profit.
It may seem obvious to some, but it’s recommended that traders practice on before entering live trades. This allows for testing strategies, sharpening skills and avoiding losing money in the market on poorly developed trading ideas. Most brokerages offer trading simulators that can be used for free when opening an account. If possible, traders may want to seek simulators that use real-time market information so that they can test their strategies in real-life market conditions.
Another popular technique for practicing trading strategy is to use “backtesting.” Backtesting is testing strategies with historical data to verify whether a particular strategy can be successful. The advantage of backtesting is that by using scenarios that have already occurred, you won’t be forced to wait for several scenarios to play out in the live market to verify the consistency of your strategy.
“CUT LOSSES SHORT, LET PROFITS RUN”
As it turns out, the words of famed late 18th century economist and trader David Ricardo—”Cut short your losses; let your profits run on”—have been particularly useful for traders over time,
In an FXCM study of 43 million trades, it was revealed that most traders made winning trades but nonetheless lost money when trading. The study showed that the key mistake made by traders was that they were taking the wrong approach to both their winning and losing trades. A majority of traders who lost money on trades consistently exited their winning trades too early for fear of suffering an unexpected negative reversal. They allowed their losing trades to remain open too long under the apparent idea that the market would sooner or later undergo a favorable reversal that would allow them to make up for their losses.
Both actions are consistent with psychological studies that show that traders fear losses more than they appreciate gains. But from an objective point of view, traders have found more success by staying in the market when they are winning and getting out quickly when they are losing. One way to do this is to use stops and limits to assure a risk-reward ratio of greater than 1:1.
ENHANCING GAINS WITH MARGIN, LEVERAGE
Once traders have a handle on basic trading strategies that can produce profits, they may want to aim to make use of a margin account through which they can amplify their gains. With a sufficient deposit of cash, most brokerages will extend traders margin loans that will give them to multiply the value of their basic investment. Leverage can range from a ratio of 2:1 to up to 400:1 in some cases, meaning gains can be multiplied by those amounts. Traders who use margin need to be aware that losses can be multiplied by the same amounts.
CALCULATING COSTS: COMMISSIONS
One of the not-so-hidden costs in trading is commissions. For equities, options and , traders may pay a flat fee per trade. In stock trading, commissions are often built straight into the bid-ask spread, so traders will be subject to varying costs with each trade depending on market conditions and the widening and narrowing of spreads.